THE UNIVERSITr OF WISCONSIN 
DEPARTMENT OF POLITICAL ECONOMY 



AN OUTLINE 



OF THE 



ELEMENTS OF ECONOMICS 



BY 

WILLIAM H. KIEKHOFER 

Associate Professor of Political Economy 



Published by the University 

MADISON 

1917 



THE UNIVERSITY OF WISCONSIN 
DEPARTMENT OF POLITICAL ECONOMY 



AN OUTLINE 



ELEMENTS OF ECONOMICS 



BY 

WILLIAM H. I^IEKHOFER 

Associate Professor of Political Economy 



Witli Reading References to 

Ely's Outlines of Economics 

MarsTiall, Wright & Field's 

Materials for the Study of 

Elementary Economics 

Hamilton's Current Economic 

Problems 



Published by the University fob the Use of 
Classes in 1917-18 



MADISON 
1917 



x^5 



Copyright 1917 by 
William H. Kiekhofer 



All Rights Reserved 



©CU478139 



MOV 19 191? 

1 } ! 



CONTENTS 



FIRST SEMESTER: PRINCIPLES 

Part I — Introduction 
t'hapter Page 

I. The Nature and Scope of Economics 9 

II. Some Fundamental Features of the Present Economic 

System 11 

III. The Evolution of Economic Society 13 

IV. The Fundamental Concepts of Economics 16 

Part II — Consumption 

V. Consumption 19 

Part III — ^Production 

VI. Production 22 

VII. Business Organization 24 

VIII. The Movement Toward Industrial Combination 27 

Part IV — Valuation 

IX. Value and Price 29 

X. Monopoly and Monopoly Price 36 

Part V— Exchange 

XI. Money Exchange 39 

XII. Credit and Banking 43 

XIII. Some Monetary Problems 46 

XIV. Foreign Exchange and International Trade 49 

XV. Tariff Policies 51 

Part VI — Distribution 

XVI. The Marginal Productivity Theory of Distribution 52 

XVII. The Rent of Land 54 

XVIII. The Wages of Labor 57 

XIX. The Interest of Capital 60 

XX. The Profits of the Entrepreneur 63 

5CXI, The Distribution of Wealth Among People 65 



TABLE OF CONTENTS 



SECOND SEMESTER: PROBLEMS AND POLICIES 

Part VII — Problems of Industrialism 

XXII. Capitalism and the Wages System 66 

XXIII. The Factory System 67 

XXIV. Evils in the Machine Process 68 

XXV. Economic Changes in the Home and the New Economic 

Status of Women 69 

Part VIII — Labor Problems 

XXVI. The Nature of Labor Organizations 70 

XXVII. Labor Union Policies 71 

XXVIII. Class Differentiation and Industrial Conflict 73 

XXIX. Industrial Peace 75 

XXX. Labor Legislation 77 

Part IX — Populatiox Problems 

XXXI. The Problems of a Growing Population 79 

Part X — Problkais of Specltl^vtiox 

XXXII. The Problem of Organized Speculation 81 

Part XI — The Probij:m of Crises 

XXXIII. Crises and the Business Cycle 83 

Part XII — Traxsportatiox Problems 

XXXIV. The Problem of Railway Regulation 85 

Part XIII — Insurance Problems 

XXXV. Economic Insecurity and Social Insurance 88 

XXXVI. Life Insurance 90 

Part XIV — Agricultural PROBLE:\rs 

XXXVII. Some Problems of Agricultural Economics 92 

Part XV- — Problems of Plbi.ic Financk 

XXXVIII. Public Expenditures 94 

XXXIX. The Sources of Public Revenue 96 

XL. Taxation '. 98 

Part XVI — Economic Policies 

XLI. The Policy of Mercantilism 101 

XLII. The Policy of Laissez-Faire 102 

XLIII. The Policy of Government Control 103 

XLIV. The Proposal of Socialism 104 

Suggestions Concerning Topics 107 

Suggested Topics .,.,,,,, * 108 



PLAN OF THE COURSE 



Methods of Instruction 

The course in ''Elements of Economies" extends through- 
out the year, carrying four credits per semester. In the first 
semester's work emphasis is laid on the elementary principles 
of economics, while in the second, some of the problems of the 
more applied fields of economics are discussed. The first se- 
mester's Avork may be elected Avithout the second, but students 
are advised, if their programs permit, to continue with the sec- 
ond semester's work, thus getting a general survey not only oL 
the fundamental principles but also of the practical problems 
of economics. 

Five methods of instruction are used in the course : the lecture, 
the class discussion, the written exercise, collateral reading, and 
the personal conference. 

The Lecture. — In the two lectures per week some descrip- 
tive material will be presented, due to the division of labor be- 
tAveen the lecture and class discussion, but it will always be the 
main purpose of the lecture to explain difficult points, to cor- 
relate, to apply, and if possible to inspire. 

The Class Discussion. — The class will be divided into sec- 
tions of approximately tAA^enty students each for the purpose of 
discussing the subject upon the basis of textbook study and col- 
lateral reading. The meeting of the section is not for the pur- 
pose of oral "quizzing" or examination, but for developing the 
subject by the method of question and answer. The class dis- 
cussion aims at clarifying the subject for the student, and is a 
coordinate branch of instruction with the lecture. 

Written Exercise. — A number of problems or exercises, il- 
lustrating hoAV economic principles are applied, Avill be assigned 
from time to time during the first semester. Students are ex- 
pected to hand in written answers to their instructors; the in- 
structors will explain the form in which these Avritten exer- 



6 THE UNIVERSITY OF WISCONSIN 

cises are to be prepared. Topics developed in outline form will 
be required in the second semester. 

Collateral Reading. — A considerable part of the collateral 
reading for the first semester will be found in Marshall, Wright 
and Field's Materials for the Study of Elementary Economics; 
for the second, in Hamilton's Current Economic Problems. Gen- 
eral reference w^orks will be found in the economics library, 
room 301 of the Physics-Political Economy Building, and on the 
reserved shelves of the reading room of the University Library. 
Students are encouraged to read some one textbook in addition 
to the regular text and to familiarize themselves with the liter- 
ature of the subject. 

Personal Conference. — Each of the instructors, including the 
lecturer, will arrange hours each week for personal conferences 
with students in his office. The hours will be announced in the 
sections and in the student directory. It will be an excellent 
plan for students to keep a card on which to note questions or 
topics arising in the reading, class discussions or lectures that 
they do not understand, and then to consult with their instruc- 
tors concerning them. 

Textbooks 

Ely's Outlines of Economics, revised edition of 1916. 
Marshall, Wright & Field's Materials for the Study of Ele- 
mentary Economics, second edition (First semester). 

Hamilton's Current Economic Problems (Second semester). 
Kiekhofer's Outline of the Elements of Economics. 

Examinations 

Thei'e will be monthly examinations of one hour each in ad- 
dition to the final examination. Notice of the regular examina- 
tions will always be given one week in advance. 

Semester Grade 

The semester grade will be computed upon the basis of the 
examination grades and the class work, the class work grade in- 
cluding both the written and class discussion work. 



elements of economics 7 

Purpose and Use of this Outline 

This topical outline of the elements of economics has been 
prepared for the purpose of furnishing unity to the course. 
The analysis here made will be developed in the lectures and 
class discussions, some topics being discussed only in the lectures, 
some only in the sections, and some in both. The organization 
of thought here suggested is tentative and will be varied Avhen- 
ever it can be improved, considering both' the logic of the 
thought and the needs of beginning students. 

Eeading references to the three textbooks are given. Through- 
out this outline Ely's Outlines of Economics is called reference 
(1) ; Marshall, Wright and Field's Materials for the Stiidij of 
Elementary Economics, reference (2) ; Hamilton's Current Eco- 
nomic Prohlems, reference (3). 

In preparing his work the student is advised first to read the 
references given at the close of each chapter of this Outline 
through from beginning to end, and then to go over the assign- 
ment topically with the aid of this Outline. If this is done the 
student will come to class prepared intelligently to listen to 
the lecture and to participate in the class discussion. 



Part I — Introduction 



CHAPTER I— THE NATURE AND SCOPE OF ECONOMICS 

I. The Nature oe^ Economics 

"Economics is the science which treats of those social 
phenomena that are due to the wealth-getting and wealth- 
using activities of man " (1) 4. 

** Economics is the science which treats of those social 
phenomena that are due to the wealth-getting and wealth- 
using activities of man" (1) 4. 

phases of his life in so far as they affect his social activity 
in this respect." — Ely & Wicker, Elementary Principles 
of Economics, p. 3. ' 

II. Distinctive Chakacteristics of Economic Science 

1. Meaning of the term "science". 

2. Meaning of the term "law". 

A scientific law is a statement of the I'elation between 
phenomena, the cause and effect relationship, which al- 
ways holds under given conditions. 

3. Meaning of "economic laws" (1) 7-11, 

4. Economics, a social science. 

III. The Relation of Economics to Other Social Sciences 
Such as (1) 11-15 

1. Sociology. 

2. Polities. 

3. Jurisprudence. 

4. Ethics. 

The social sciences all deal with men in their rela- 
tions to each other. For every distinct relationship be- 
tween men, there is a distinct science. But there can 
never be any such sharp boundary line between the so- 
cial sciences as between the physical sciences. 



10 THE UNIVERSITY OF WISCONSIN 

IV. The Relation of Economics to Social Psychology 
(1) 103-105 

1. The old psychology of the "economic man". 

2. The new social psychology, 

a. Its emphasis upon impulses, instinctive and habit- 
ual. 

b. Its emphasis upon the influence of the group. 

V. The Scope of Economics 

Reference 
(1) Ely, R. T., Outlines of Economics, Ch. I. 



ELEMENTS OP' ECONOMICS H 



CHAPTER II— SOME FUNDAMENTAL FEATURES OF 
THE PRESENT ECONOMIC SYSTEM 

I. The Meaning of "Economic System" 

II. Some Fundamental Legal Institutions of the Present 
Economic System 

1. Property (1) 21-24. 

2. Inheritance (1) 24-25. 

3. Contract (1) 25. 

4. Vested interests or rights ( 1 ) 25-26. 

5. Personal freedom (1) 26-28. 

a. Freedom of person. 

b. Freedom of movement. 

c. Freedom of occupation. 

d. Freedom of association. 

e. Freedom of consumption. 

f. -Freedom of production. 

III. Some Fundamental Forces of the Present Economic 
System 

1. Custom (1) 31. 

2. Competition (1) 28-30. 

3. Monopoly (1) 30-31. 

4. Public authority. 

IV. Some Fundamental Structures of the Present Eco- 
nomic System 

1. Machine industry. 

2. The division of labor. 

3. Economic classes. . 

4. Cooperation. 

5. Exchange mechanisms. 

6. Commercial and industrial combinations. 

7. Regulating bodies. 

V. Some Fundamental Functions of the Present Eco- 
nomic System 

1. The consumption of goods. 

2. The productive process. 

3. The distributive process. 



12 THE UNIVERSITY OF WISCONSIN 

VI. The Critics of the Present Economic System 

1. Economic radicals. 

a. Philosophical anarchists. 

b. Communists. 

c. Socialists. 

2. Economic reformers. 

a. Co-operationists. 

b. Social reformers. 

Reference 
(1) Ely, R. T., Outlines of Economics, Ch. II. 



ELEMENTS OF ECONOMICS 13 



CHAPTER III— THE EVOLUTION OF ECONOMIC 

SOCIETY 

I. The Importance of the Idea of Evolution in Scientific 
Thought 

II. Phases of Universal Evolution 

III. The Meaning of Industrial Evolution 

IV. The Economic Interpretation of History in Relation to 
Industrial Evolution 

V. Principles Underlying the Classification op the Eco- 
nomic Stages 

A. CHARACTER OF THE PROCESS OF EXCHANGE (hILDEBRAND) . 

1. Barter economy. 

2. Money economy. 

3. Credit economy. 

B. SIZE OF THE ECONOMIC UNIT (bUCHER). 

1. Independent household economy. 

2. Town economy. 

3. National economy. 

4. World economy. 

C. CONDITION OF LABOR. 

1. Independent or communal labor. 

2. Slavery and serfdom. 

3. Wage labor regulated by individual contract. 

4. Wage labor regulated by collective bargaining. 

D. EXTENSION OF THE MARKET ( COMMONS). 

1. Itinerant labor stage. 

2. Custom order stage. 

3. Retail shop stage. 

4. Wholesale order stage. 

5. Merchant-capitalist stage. 

6. Merchant-jobber stage. 

7. Factory stage. 

E. man's control over NATURE (LIST et ol.) . 

1. Direct appropriation stage. 

2. Pastoral stage. 

3. Agricultural stage. 



]4 THFi UNIVERSITY OF WISCONSIN 

4. Handicraft stage. 

a. Guild system. 

b. Domestic system. 

5. Industrial stage. 

VI. The Stage of Modern Industrialism 

A. The nature of the industrial revolution. 

B. The scope of the industrial revolution, 
c. The effects of the industrial revolution. 
D. Phases of the industrial stage. 

1. Phase of competition. 

2. Phase of concentration. 

3. Phase of integration. 

References 

(1) Ely, R. T., Outlines of Economics, Chs. 3, 4. 

(3) Hamilton, W. H., Current Economic Problems, Sees. 3-15, 
20-27. 

(4) Biicher, Karl, Industrial Evolution, Chs. 1, 2,_3. 

(5) Commons, J. R., Labor and Administration, Ch. 14. 

Exercises 

1. Organic evolution implies heredity. Is there a social hered- 
ity comparable to the organic heredity? 

2. Roscher asserted that the life of a nation, like that of an 
individual, has its youth, middle age, and old age. Is this 
true? 

3. It has been held that because economic progress has been 
continuous, it is incorrect to divide it into "stages". Is 
this true? 

4. According to Biicher what change has taken place in the 
relations of producer and consumer as a result of economic 
progress 1 Is this tendency universal and always desirable ? 

5. How would the development of an international economy 
affect world peace ? 

6. Were the cattle and sheep ranches of the western part of 
the United States fairly comparable to the pastoral stage 
in the economic evolution of society? 



EI.EMENTS OF ECONOMICS 15 

7. What is the difference between the craft guilds of the handi- 
craft stage and modern labor organizations'? 

8. Contrast the control of industry in the guild period with the 
control of industry by government today. 

9. Explain and criticise the violent opposition on the part of 
labor to the introduction of the new textile machinery. 

10. Illustrate how a knowledge of economic evolution throws 
light upon American politics, past and present. 



IQ THE UNIVERSITY OF WISCONSIN 



CHAPTER IV— THE FUNDAMENTAL CONCEPTS OF 
ECONOMICS 

I. A Good is anything capable of satisfying a human want. 
Goods have utility. Utility is the power of the good, 
whether material or non-material, directly or indirectly 
to satisfy a human want. Goods have utility, yield serv- 
ices, afford gratifications. 

II. Material Goods consist of tangible things possessing util- 
ity. Sometimes we refer to these external objects pos- 
sessing utility as Commodities. 

III. Personal Services are those want-satisfying human activ- 
ities which require direct cooperation between the persons 
concerned in the satisfaction of the want. There are also 
Impersonal Services of men, like most factory labor. 

IV. Free Goods are goods which at a given time and place, 
and without cost to anyone, exist in quantities sufficiently 
large to satisfy all wants for them. 

V. Economic Goods are goods which at a given time and 
place cannot be obtained without cost in quantities suf- 
ficiently large to satisfy all wants for them. 

VI. Consumption Goods are goods in the hands of the final 
consumer intended for use in the direct satisfaction of 
human wants. 

VII. Production Goods are goods which can satisfy human 
wants only indirectly through the production of other 
wealth. 

VIII. Capital Goods are those products of past industry which 
are used or held for the purpose of (1) producing or (2) 
acquiring wealth. Capital goods may be either (1) social 
capital or (2) acquisitive capital. 

IX. Natural RepouPvCes, as production goods, are those gifts 
of nature which are used for the further production of 
social wealth. 



ELEMENTS OF ECONOMICS 17 

X. Social Wealth consists of all material goods on hand at a 
given time. This is what is meant by wealth from the so- 
cial point of view. 

XI. Private Wealth comprises all material goods, or rights 
and claims to material goods and services, owned by an 
individual, partnership, or corporation. 

XII. Public Wealth comprises all material goods, or rights 
and claims to material goods and services, owned by a gov- 
ernmental organization. 

XIII. Claim Goods are property rights or possession claims, or 
the evidences thereof, to other goods. 

References 

(1) Ely, R. T., Outlines of Economics, Gh. VII. 

(2) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 10-14. 

Exercise 

1. Construct a tabular form in which you give a column in the 
order named to each of the following twelve concepts as 
used in economics : good, material good, personal service, 
free good, economic good, consumption good, production 
good, capital good, natural resources, social wealth, private 
wealth, public wealth, claim good. Add a column at the ex- 
treme right of your form for ' ' remarks ' ' in which you state, 
if necessary, the basis of your classification. Add a column 
at the extreme left of your form in which you list the fol- 
lowing twenty-five things for classification. Place a check 
mark for each in each of the columns in which it belongs. 

1. A farmer 's plow. 

2. The Lincoln Statue on the upper campus. 

3. Your shoe. 

4. Merchant's stock of shoes. 

5. U. of W. automobile truck. 

6. Your share of U. S. steel stock. 

7. Caruso's song. 

8. Caruso's ability to sing. 

9. Caruso record held by Victor Co. 
10. Fuller moving picture machine. 



18 THI-: T'NIVKRSTT^' ol'^ WTSrONSTN 

11. Surgeon 'y instruments. 

12. A's five dollar gold piece. 

13. A copyright to its owner. 

14. Madison street car. 

15. Your railway ticket to Alilwjiukee. 

16. State capitol building. 

17. A carpenter's skill. 

18. Fuller theater to the playgoer. 

19. Diamonds in Lusitania. 

20. A mortgage note held by A. 

21. Excursion steamer. 

22. Melba's diamonds. 

23. Handsome face. 

24. Unmined coal. 

25. Fraternity pin. 



ELEMENTS OF ERGONOMICS 19 



Part II — Consumption 



CHAPTER V— CONSUMPTION 

I. The Nature of Human Wants (1) 133; (2) 20-23 

1. Expansion. 

2. Satiability. 

II. Consumption — The Satisfaction of Human Wants 

1. Pinal consumption means the use of goods in the di- 
rect satisfaction of human wants (1) 132—133. 

2. Harmful consumption means that use of goods in the 
direct satisfaction of human wants which lowers the 
efficiency of the consumer (1) 144. 

3. Destructive consumption is that form of consumption 
in which the satisfaction derived is insignificant when 
compared with other uses that could be obtained from 
the goods. Nero 's burning of Rome, whatever the util- 
ity it may have conferred, was destructive consump- 
tion. Some luxuries are consumed so wastefully that 
their consumption amounts to destructive consump- 
tion. 

4. Productive consumption — a pseudo-form of consump- 
tion (1) 132-133. 

5. Luxury (1) 143-144. 

a. Nature. 

b. Alleged justifications. 

c. Real justifications. 

III. The Lav^s of Consumption 

1. Laws based on the psychology of want satisfaction, 
a. The law of diminishing gratification. The grati- 
fication received from the consumption of a unit of 
a good decreases as we consume successive units 
of it (2) 23-25. 



20 THE UNIVERSITY OF WISCONSIN 

b. The law of the estimation of the utility of future 
goods (2) 25-26. 

c. The law of harmony in consumption. 

d. The law of variety in consumption. 

2. Law based on the statistics of expenditure — Engel's 
law applied to American conditions. 

a. As income increases, the percentage of it expended 
for (1) food, (2) fuel and light decreases. 

b. As income increases, the percentage of it expended 
for clothing and sundries increases. 

c. As income increases, the percentage of it ex- 
pended for housing remains about constant. 

IV. The Economic Oroer of Consumption (1) 139-141 
1. Maintenance of the margin of consumption. 

V. The Relation of Consumption to Saving (1) 142-143 

1. The desirability of securing a surplus. 

2. Aspects of saving. 

a. Saving as conservation. 

b. Saving as postponement of consumption. 

3. Conditions of saving. 

4. Alleged present consumption of future products. 

VI. The Relation of Production to Consumption (1) 14G- 
149 

1. The disutility in production as measured by 

a. Subjective cost. 

b. Expense of production. 

c. Opportunity cost. 

2. The surplus of utility over disutility. 

References 

(1) Ely, R T., Outlines of Economics, Ch. IX. 

(2) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 6-7. 

Exercise 

1. An American wage earner in a given year had a money 
income of $750. His yearly account showed that he spent 



ELEMENTS OF ECONOMICS . 21 

$300 for food, $150 for rent, $75 for clothing, $90 for fuel 
and light, and $135 for sundries. Suppose that a few years 
later his income had increased by one-half. Upon the 
basis of Engel's law of expenditure as modified for Ameri- 
can conditions, calculate his approximate expenditure for 
each of the five items, assuming that he spends his entire 
income. 



22 THE UNIVERSITY OF WISCONSIN 



Part III — Production 
CHAPTER VI— PRODUCTION 

I. The Nature of Production (1) 116-118; (2) 45-55. 

Production by man consists in his creation of economic 
utilities by the application of his mental and physical pow- 
ers to the materials of nature, or by the rendition of direct 
personal services. 

Not all production results in the creation of social wealth, 
e. g., direct personal services. Production may consist in 
the 

1. Creation of form utility. 

2. Creation of place utility. 

3. Creation of time utility. 

4. Rendition of direct personal service. 

II. The Factors in Production 

1. Nature (1) 119-120; (2) 58-60. 

2. Labor (1) 120-121; (2) 105-108. 

"Labor, as a factor of production, includes human ac- 
tivities of every sort, intellectual as well as physical, which 
have economic significance" (1) 120. Not all human ef- 
fort is productive labor, e. g., driving an automobile for 
pleasure. The "economic significance" which makes hu- 
man effort "labor" may arise from the production of .so- 
cial wealth, or from the rendition of personal services. 

3. Social capital (1) 121-123; (2) 157-160. 
a. Fixed capital. 

1). Circulating capital, 
c. Formation of capital. 

4. Entrepreneur (1) 123-124. 

III. The Differentiation of Labor (1) 124-130; (2) 181- 
204. 

1. Specialization of occupations. 

2. Lpcalization of labor. 

a. Intra -sectional. 

b. Inter-national. 



ELEMENTS OP ECONOMICS 23 

3. Technical ''division of labor". 

a. Advantages. 

b. Disadvantages. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. VIII. 

(2) Marshall, Wright, and Field, Materials for the Study of 
Elementary Economics, Sees. 15-17, 24—25,. 41-43, 51, 
53-58. 

Exercise 

1. Show clearly and concisely why each of the following ac- 
tivities is or is not production : 

1. The telephone service. 

2. The U. S. mail service. 

3. Gambling. 

4. The mail order business, 

5. Selling life insurance. 

6. Preaching of a clergyman. 

7. Professional baseball playing. 

8. Manufacturing war munitions. 

9. Lumbering. 

10. Raising corn. 

11. "Writing newspaper editorials. 

12. Teaching "Elements of Economics" in the University 
of Wisconsin. 



24 THE UNIVERSITY OF WISCONSIN 



CHAPTER VII— BUSINESS ORGANIZATION 

I. The Nature of Business (1) 212 

II. Accounting Statements Revealing the Condition of a 
Business Unit 

1. The statement of assets and liabilities — the balance 
sheet or financial statement (1) 213-214. 

2. The statement of income and expenditure, showing 
profit and loss — the operating statement. 

III. The Individual Entrepreneur as a Type of Business 
Unit (1) 214-215 

IV. The Partnership as a Type of Business Unit (1) 215- 
216; (2) 233-234 

1. Nature of partnership. 

2. Advantages to business-man. 

a. Ease of organization. 

b. Elasticity of contractual relations among the part- 
ners. 

3. Disadvantages to business-man. 

a. Unlimited })ersoiu)l liMbility. 

b. Instability. 

c. Unadaptability to the largest enterprises. 

V. The Corporation as a Type of Business Unit 

1. Nature of corporation. A corporation is an associa- 
tion of individuals known as stockholders empowered 
])y legal charter, through a Ijoard of directors and un- 
der a corporate name to act as one person in the con- 
duet of a specified business. The corporation is an ar- 
tificial person created l)y law for some specific purpose 
(1) 216-217. 

2. The provisions of the corporntion charter (l) 217- 
219; (2) 234-236. 

3. The corporation management (1) 226-228. 

4. Advantages to business-man (1) 228. 

a. Limited liability. 

b. Stability. 



ELEMENTS OP ECONOMICS 25 

e. Flexibility. 

d. Efficiency in management. 

e. Command over large amounts of capital. 

5. Social dangers in corporations (1) 228-229, 

6. Corporation capital (1) 219. 

The business world uses the term "capital" to desig- 
nate the 

a. Investment in a business. 

The investment may include capital goods, land, 
acquisitive wealth, intangible as well as tangible 
things. 

b. Selling value of a business, measured by the market 
value of the stocks and bonds of the business at the 
given time. 

7. Classification of corporation securities (1) 220; (2) 
241-251. 

a. Stocks — entrepreneurial interests. 

(1) Preferred. 

(a) Cumulative, (b) Non-cumulative. 

(2) Common. 

b. Bonds — creditor interests. 

8. Corporation capitalization. 

a. Capitalization in the legal sense is the amount of 
authorized capital stock of a corporation (1) 219. 

b. Possible bases of capitalization in the economic 
sense (2) 252-256. In the economic sense capitali- 
zation includes not only the stocks but also the bonds 
of a corporation. 

(1) Original investment. 

(2) Earning capacity. 

(3) Cost of reproduction minus depreciation — the 
physical value of the plant, measured by all the 
concrete material assets of the business. 

e. Overcapitalization. 

d. Objections to overcapitalization. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XIII, pp. 212-230. 

(2) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 64, 65, 69-72. 



26 the university of wisconsin 

Exercises 

1. Adams, Brown and Cole establish the ''A. B. C. Leather 
Goods Company", a partnership with a capital stock of 
$150,000 to which each of the partners contributes $50,000. 
Adams has assets in excess of $300,000; Brown and Cole 
have $5,000 each in addition to the money invested in this 
partnership. 

a. How would the death of Adams affect the perpetuity of 
the partnership? 

b. Suppose the business to be forced into bankruptcy with 
liabilities exceeding assets by $50,000. To what extent is 
each of the partners liable for the debts of the company 
and how would the present indebtedness be settled? 

c. Would the liability arising out of the bankruptcy be dif- 
ferent if the firm were a corporation instead of a partner- 
ship ? By whom would the $50,000 loss be borne ? 

2. An industrial corporation has issued $10,000,000 of 7 per 
cent cumulative preferred stock, $10,000,000 of common stock 
and $5,000,000 of 5 per cent bonds. For the year 1914 its 
net earnings were $600,000 ; for 1915, due to heavy war 
business, $1,800,000. Show how these net earnings were dis- 
tributed among the holders of the different securities in both 
1914 and 1915 upon the assumption that the directors de- 
cided to take the entire amount of the net earnings out of 
the business. 



ELEMENTS OF ECONOMICS 27 



CHAPTER VIII— THE MOVEMENT TOWARD INDUS- 
TRIAL COMBINATION 

I. The Movement Toward Industrial Combination 

II. Factors Promoting Combination in the U. S. 

1. Tariff favoritism. 

2. Railway favoritism. 

3. Practice of local underselling. 

4. Patent privileges. 

5. Manufacturers' rebates. 

III. The Purpose of Combination (1) 232-235; (2) 327-331 

1. Industrial and commercial advantages of large scale 
production. 

2. Elimination of competition. 

3. Regulation of output. 

4. Maintenance of prices. 

5. Profits of promoters. 

IV. Natural Field for Combination 

1. Natural monopolies. 

2. Businesses handling standardized articles. 

3. Businesses handling widely used commodities. 

4. Businesses protected by patents. 

5. Businesses requiring a large amount of capital. 

V. Forms of Combination (1) 230-232 

1. Informal or formal associations. 

2. Pools. 

Pools were agreements by which railroad companies 
or manufacturers divided the earnings in accord- 
ance with some stipulated ratio. 

3. Trusts. 

A trust was originally a combination of corpora- 
tions, the stock of the constituent corporations being 
assigned to a board of trustees for management. 
Each of the constituent corporations maintained its 
independent legal entity. 



28 THE UNIVERSITY OF WISCONSIN 

4. Holding Company (2) 239-241. 

The holding company is a corporation which owns a 
controlling share of the stock of the corporations in 
the combination. The term "trust" in popular 
usage includes holding companies and mergers. The 
constituent corporations are subsidiary instead of 
nominally independent. 

5. Mergers. 

VI. Common Law Status of Combinations in Restraint 
OF Trade 

VII. Anti-Trust Legislation (1) 235-243; (2) 334-335 

1. Sherman Anti-Trust Act of 1890. 

a. Provisions. 

b. Important prosecutions under the Act. 

c. Lawful practices under Sherman Act. 

d. Unlawful practices under Sherman Act. 

2. Clayton Anti-Trust Act of 1914 (2) 337-339. 

3. Federal Trade Commission Act of 1914 (2) 336-337. 

VIII. Public Policy Toward Industrial Combinations 
(1) 243-246; (2) 329-333 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XIII, pp. 230-246. 

(2) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 91, 92, 93. 

(4) Van Hise, C. R., Concentration and Control, Ch. I. 



ELEMENTS OF ECONOMICS 29 



Part IV — Valuation 

CHAPTER IX— VALUE AND PRICE 

I. The Basis of Exchange (1) 19-21; 151 

Exchange, trade, and commerce are the result of spe- 
cialization in production, and also make possible the ex- 
tensive cooperation of the existing economic system. The 
process of exchange gives rise to the problem of ex- 
change value and price. 

II. The Nature of Exchange Value and Price 
(1) 151-153 

"Value" is a term that is used in many different 
senses. When we speak of the market or exchange value 
of a good Ave mean its "power in exchange." 

1. "Exchange value is a purely relative or compara- 
tive magnitude and there is no way of expressing or 
measuring the exchange value of a good except in 
terms of its command over other goods. In such 
a measurement exchange value can be expressed 
either as a quantity or as a ratio. We thus express 
the exchange value of any good either by stating the 
quantity of other goods than can be obtained for it 
or by stating its ratio of exchange with other 
goods" (1) 152. 

2. Price is exchange value expressed in terms of money. 

III. Factors in the Determination of Exchange Value 
and Price (1) 153-155 

1. Custom. 

2. Public authority (1) 183-184. 

3. Monopoly. 

4. Free competition of market. 

"Market" here means the general field within which 
the forces determining the price of a particular coii^* 
modity operate (1) 154. 



30 THE UNIVERSITY OF WISCONSIN 

IV. Frep: Interaction of Demand and Supply, the Es- 
sence OF Competition as a Price-Determining Fac- 
tor (1) 156 

V. Analysis of Demand as a Price-Determining Factor 

1. Meaning of demand (1) 156. 

Demand means the amount of a good that buyers are 
ready to purchase in a given market at a given price. 

2. The determinants of demand (1) 156-159. 

a. Desire. Goods are desired because they have 
utility. 

b. Purchasing ability. 

c. Inclination to buy. 

3. The elasticity of demand (1) 159-161. 
Variations in the elesticity of demand in the case of 

a. Necessities. 

b. Luxuries. 

c. Habitual consumption goods. 

d. Non-habitual consumption goods. 

e. Goods for which there are adequate substitutes. 

f. Persons with large incomes. 

g. Persons with small incomes. 

4. Utility as a determinant of demand. 

In considering utility as a determinant of demand it 
is necessary to note 

a. The law of diminishing utility. The intensity of 
our desire for additional units of a good decreases 
as we acquire successive units of it (1) 133-135. 

b. The importance of marginal utility as a deter- 
minant of demand (1) 135-137. 

"The utility of the final or marginal unit of a 
person's stock of a given commodity is called the 
marginal utility of that commodity to that per- 
son." Whether marginal utility is defined as 
the utility of the last unit of a stock of goods on 
hand or an additional unit to be acquired varies 
with the view point of prospective seller or pur- 
chaser. 

c. The principle of indifference.' 

It should be noted that marginal utility does not 
mean the utility of any particular unit but the 



ELEMENTS OP ECONOMICS 31 

utility dependent on the possession of any one 
unit of a given stock. 

Demand is of course a reflection of utility; 
marginal utility emphasizes the variable part of 
the demand, taking the existence of a large un- 
varying demand for granted. In the actual de- 
termination of price it is the marginal utility of 
a good to prospective purchasers and sellers that 
counts, for prices are adjusted at though not by 
the margin. 

5. The relation of marginal utility to subjective value 
(1) 137-139. 

Subjective value is something psychic. It always 
implies the choosing of some things rather than 
others, the comparison of their utilities. 

"The subjective value of a good to any person is 
that person's estimate of the importance of possess- 
ing that good as compared with the importance of 
possessing other goods" (1) 138. 

The subjective value of a good involves the com- 
parison of its marginal utility with the marginal 
utility of other goods — it is relative marginal utility. 
Concretely, subjective value is measured by the 
largest amount of other goods which a person will 
give for a good, or the smallest amount of other 
goods which he will accept for it. 

6. The relation of subjective value to exchange value 
(1) 155-156. 

Subjective value is the basis of exchange value. 
Exchange value is the resultant of the subjective 
values of possible purchasers and sellers. 

7. Nature and origin of consumers' surplus (1) 161- 
162. 

VI. Analysis of Supply as a Price-Determining Factor 
1. Meaning of supply (1) 162-164. 

a. Market supply means the amount of a good that 
sellers are ready to sell in a given market at s^ 
given price. 



32 



THE UNIVERSITY OF WISCONSIN 



b. Potential supply. 

The amount of a comniodity which at any given 
time is available for a given market constitutes 
the potential supply. 
2. Determinants of market supply at a given time. 

a. Subjective value of good to prospective seller, 
/. e., marginal utility of good in comparison with 
the marginal utility of money offered for the good. 

VII. The Process of the Determination of Price 

1. Four possible cases. 

a. The case of one buyer, one seller (1) 187. 

b. The case of several buyers, one seller, tliere being 

(1) A single non-reproducible good (1) 182. 

(2) Several non-reproducible goods (1) 182. 

(3) Freely reproducible goods. 

c. The case of one buyer, several sellers. 

d. The case of several buyers, several sellers (1) 164- 
165. 

2. Typical case illustrating several buyers, several sell- 
ers. 



Prospec 


tive Buyers 


A will buy 1 unit at 30 


, 2 at 21 


; 3 at 16 


B will buy 1 unit at 26 


; 2 at 20 


, 3 at 15 


C will buy 1 unit at 22 


2 at 17 


; 3 at 8 


D will buy 1 unit at 18 


; 2 at 14 


; 3 at 9 


Prospec 


;tive Sellers 


M will sell 1 unit at 12 


2 at 17 


3 at 20 


N will sell 1 unit at 9 ; 


2 at 15 


3 at 18 


will sell 1 unit at 8 ; 


2 at 14 


3 at 16 


P will sell 1 unit at 10 ; 


2 at 11 


3 at 14 



Construction of demand schedule. Each buyer 
comes to the market with a more or less definite 
schedule of subjective values. The demand sched- 
ule of a given market is a composite of the subjec- 
tive values of all prospective buyers. 
Construction of supply schedule. Each seller 
comes to the market with a more or less definite 
schedule of subjective vg,lues. Tl|e supply sched- 



ELEMENTS OP ECONOMICS 3-3 

ule of a given market is a composite of the sub- 
jective values of all prospective sellers. 

c. Graphic determination of price. 

There can be only one price in a given market at 
the same time. The market price will be the price 
at which the largest number of exchanges can be 
effected, where demand and supply are in equili- 
brium. Usually in such a market certain buyers 
and certain sellers will be excluded by their own 
subjective values, and only the most urgent buy- 
ers and sellers will actually exchange goods. 

d. The relation of market price to imputed price. 

III. Analysis of Long-Time Demand and Supply 

So far the price determination has been made upon 
the basis of the interaction of the demand and ^supply 
existing in a given market at a given time. But there 
are certain slowly acting movements that affect the long 
time demand and supply, which must be studied if the 
problem of price determination is to be fully understood. 

1. Long-time determinants of demand (1) 167. 

2. Long-time determinants of supply. 

a. Expense of production (1) 170-174. 

(1) Three possible cases. 

(a) Industries characterized by increasing 
expense per unit of product. 

(b) Industries characterized by decreasing 
expense per unit of product. 

(c) Industries characterized by constant 
expense per unit of product. 

(2) Fixed and variable expenses (1) 174-179. 

(3) Expense of production and normal price 
(1) 167-170. 

b. Physical limitation of supply. 

c. Monopolistic limitation of supply. 

IX, Summary of the Theory of Value and its Criticisms 
(1) 186-187 



34 THE UNIVERSITY OF WISCONSIN 



References 

(1) Ely, R. T., Outlines of Economics, Chs, X and XI. 

(2) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 102, 104^105, 107-108, 114, 
116-117, 121, 124. 

Exercises 

1. In a given market the demand for and supply of strawber- 
ries is as indicated in the following schedules : 

Price per box Demand in boxes Supply in boxes 



^.04 


2600 


100 


.06 


2100 


600 


.08 


1800 


1100 


.10 


1450 


1400 


.12 


1250 


1600 


.14 . 


1100 


1800 


.16 


950 


2000 


.18 


800 


2150 


.20 


700 


2300 


.22 


600 


2400 



a. Plot the demand and supply curves and determine the 
market price. 

b. Suppose the demand to be twice as great at each of the 
above prices, the supply remaining as indicated. Con- 
struct the new demand schedule, plot the demand and 
supply curves and determine the market price. 

c. Suppose the supply to be one-half as great at each of the 
above prices, the demand remaining as indicated. Con- 
struct the new supplj^ schedule, plot the demand and sup- 
ply curves and determine the market price. 

d. Suppose both the demand and supply to be twice as great 
at each of the above prices as indicated. Construct the 
new schedules, plot the demand and supply curves and 
determine the market price. 

In a given market there are the following demand and sup-^ 
ply for a given commodity : 

A will buy 1 unit at $.50 ; 2 units at $.45 ; 3 units at $.30. 
B will buy 1 unit at .45 ; 2 units at .40 ; 3 units at .30. 
C will buy 1 unit at .35 ; 2 units at .33 ; 3 units at .31. 
P will buy 1 unit at .44 ; 2 units at .40 ; 3 units at ,9!4, 



ELEMENTS OF ECONOMICS 35 



M will sell 1 unit at $.32 ; 2 units at $.39 ; 3 units at $.45. 



N will sell 1 unit at .35 
will sell 1 unit at .30 
P will sell 1 unit at .35 



2 units at .40 ; 3 units at .48. 
2 units at .37 ; 3 units at .43. 
2 units at .45 ; 3 units at .50. 

a. Construct the demand and supply schedules ; plot the de- 
mand and supply curves and determine the market price. 

b. Remembering the market price established in "a", name 
the buyers and sellers and indicate the number of units 
each one buys or sells. Why do the remaining units not 
exchange hands? 

c. Using the above data show clearly what is meant by the 
subjective value of the commodity to A and to M. 

Under what circumstances might a fruit vender sell straw- 
berries below or above the normal price? 



THE UXl\'KliSJ'rV (»I'' \VI.S<"()NSIN 



CHAPTP:R X— monopoly AM) MONOPOLY PRICE 

I. The Nature of MoxNopoly (1) 189-193 

1. Contrast l)etween competition and monopoly as factors 
in the determination of ])riee. 

2. J)efinition of monopoly. 

■'Monoi)oly means that substantial unity of action on 
the part of one or more persons engaged in some kind 
of business which gives exclusive control, more parti- 
cularly, although not solely, with respect to price" 
(1) 190. The unity of action may lie in production, 
selling, or buying. 

11. Classification OF MoNOPOLn:s (I) 193-200 

A. As to degree 

1. Partial. 2. Com])lete. 

B. As to beneficiary. 

]. Public. 2. l*i-ivate. 
c. As to area. 

1. Local. 2. National. 3. International, 
u. As to source of monopoly power. 

1. Social monopolies. 

a. General welfare monopolies. 

(1) Patents. 

(2) Copyrights. 

(3) Public consumption monopolies. 

(4) Fiscal monopolies. 

b. Special privilege monopolies. 

(1) Those based on public favoritism. 

(2) Those based on private favoritism. 

2. Natural monopolies. 

a. Those arising from limitation of supply of raw 
material. 

b. Those arising from secrecy. 

c. Those arising fi'om peculiar properties inherent 
in the business. 



ELEMENTS OP ECONOMICS 37 

III. Causes of Monopoly 

The gain to be derived from the stifling of competition 
has been the actuating motive in the establishment of 
monopoly. /In certain businesses and industries the move- 
ment toward monopoly has been inevitable, e. g., indus- 
tries whose supply of raw material is limited, transporta- 
tion, public utilities, etc. 

IV. The Determination of Monopoly Price (1) 200-204 

1. The monopolist's control of the supply. 

The monopolist controls the supply but not the de- 
mand. He endeavors so to adjust his output to the 
existing demand that he will secure the highest net re- 
turns. 

2. Elements in the demand which influence monopoly 
price. The elasticity of the demand limits the monop- 
olist in his determination of price. The monopoly 
price of goods the demand for which is relatively elas- 
tic must be low ; the monopoly price of goods the de- 
mand for which is relatively inelastic may be high. 

3. Effect of taxes upon monopoly price. 

a. A fixed tax on the industry. 

b. A tax varying with the output. 

V. The Establishment of Class Price (1) 204-205 

1. Competitive class price. 

2. Monopolistic class price. 
a. Use price. 

VI. Public Policies Toward Monopoly (1) 208-210 

1. The policy of dissolution. 

2. The policy of regulation. 

3. The policy of government ownership. 

Exercise 

I . In a certain market for a given commodity there could be sold 
100,000 units at 50c per unit, costing 12c per unit 
130,000 " " 40c " " " lie " 

200,000 " " 30c " ." " 10c " 

400,000 " " 25c " " " 8c " "^ 

600.000 " " 20c " " " 7e " " 



:^8 



THK TXIVERKITV OF WlsrONSIN 



1,000,000 units at 15c pei 


unit. 


cost in 


^ 6c per un 


2,500,000 " " 10c " 






5c " " 


3,000,000 " " 9c " 






43/4C " " 


3,500,000 " " 8c " 






41/2C " " 


4,000,000 " " 7c " 






41/4C " " 


6,000,000 " " 6c " 






4c " " 



a. Determine the monopoly price. 

b. Determine the monopoly price if a tax of $40,000 is levied 
upon the industry as a whole. 

c. Determine the monopoly price if a tax of 1% is levied on 
the net profits. 

d. Determine the monopoly price if a tax of Ic is levied on 
each unit sold. 

Reference 

(1) Ely, R. T., Outlines of Economics, Ch. XII. 



ELEMENTS OF ECONOMICS 3,9 



Part V — Exchange 

CHAPTER XI— MONEY EXCHANGE 

I. The Early History of Money (1) 248-249 ; (2) 445-450 

II. Establishment of Metallic Money (1) 248-249 
1. Sources of superiority of precious metals. 

a. Relative stability of value. 

b. High value for small bulk — portability. 

c. Durability. 

d. Malleability. 

e. Divisibility. 

f. Cognizability. 

III. Meaning of Money (1) 250-251; (2) 443-444 

Moiiej^ is any standardized instrument of general accept- 
ability passing freely from hand to hand, without endorse- 
ment, as a medium of exchange. 

IV. Money in Circulation in the United States 

1. Kinds of money in United States (1) 254. 

a. Coins. 

(1) Gold. (2) Silver. (3) Nickel. (4) Copper. 

b. Paper. 

(1) Gold certificates. (2) Silver certificates. (3) 
U. S. notes or "greenbacks". (4) Treasury notes 
of 1890. (5) National bank notes. (6) Federal 
reserve bank notes. (7) Federal reserve notes. 

2. Redemption of U. S. money (1) 253-255; (2) 455. 
Gold constitutes the monetary standard of the U. S. 
While legally not all kinds of money are redeemable 
in gold, actually all other kinds of money are directly 
or indirectly exchangeable for gold coin. 



40 THE UNIVERSITY OF WISCONSIN 

3. Legal tender qualities of U. S. money (2) 456. Legal 
tender money is money which the law compels the 
creditor to receive at par in the settlement of debts. 
Gold and silver certificates, and national bank notes, 
e. g., are not legal tender. 

W Forms of Money 

1. Standard money, which has been declared by law to 
be standard. Usually some commodity which has as 
much value for non-monetarj^ as for monetary uses 
constitutes the standard money. Gold constitutes our 
standard money. 

2. Fiduciary money, whose value depends in whole or in 
part upon the fact that it can be exchanged for other 
money, usually standard money. Minor coins and 
paper money are examples of fiduciary money. 

3. Legal tender money, which the creditor is obliged to 
receive at par in payment of a debt. 

VI. Uses of Gold Money (1) 252-255 

1. Medium of exchange. 

2. Standard of value. 

' ' Gold, whether in coin or bullion constitutes the mon- 
etary standard, for the value of any dollar must be 
equal to the value of the gold in a gold dollar" 
(1) 255. 

3. Standard of defei'red payments. 

4. Storehouse of value. 

5. Eeserve supporting bank note circulation. 

VI [. The Coinage of Money 

1. Nature of coinage (1) 249-250. 

Coinage is the manufacture of metallic money units of 
certified weight and fineness. 

2. Amount of coinage (1) 259-260. 

a. Fi'ce (unlimited). 

b. Limited. 

:>. Charges for coinage (1) 255-259. 
a. Gratuitous. 
1). Brassage. 

c. Seigniorage. 



ELEMENTS OF ECONOMICS 41 

VIII. The Problem of Bimetallism 

1. Nature of bimetallism (1) 260. 

2. Alleged advantages of bimetallism (1) 260-261. 

3. Disadvantages of bimetallism (1) 261-263. 
Bimetallism encounters a formidable obstacle in the 
principle known as Gresham's law, i. e., that "the 
cheaper money drives out the dearer", it being as- 
sumed that both kinds of money are legal tender and 
in customary use. 

A. The bimetallic experience of the U. S. (1) 263-269; 
(2) 451-452. 

IX. The Problem of Paper Mo^ev ^c^ 

1. Nature of paper money (1) 271. 

2. Dangers in the use of inconvertible paper money, and 
paper money based upon only a partial reserve. 

a. The colonial experience with the continental cur- 
rency (1) 272; (2) 485-491. 

b. The southern experience with confederate money 
(2) 493-496. 

c. The experience of the U. S. with "greenbacks" 
(1) 273-278. 

3. The possibility of fiat money (1) 278-279. 

Fiat money is mone}^ which circulates solely because 
of the decree of the government, usually set forth in a 
law declaring the money full legal tender. Histori- 
cally our nearest approach to fiat money has been ir- 
redeemable money — intentionally irredeemable money. 
When people come to believe that fiduciary money will 
never be redeemed, it becomes practically fiat money. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XIV. 

(2) Marshall. Wright & Field, Materials for the Study of Ele- 
mentary Economics, Sees. 125-127, 129-132, 142-145. 

Exercises 

1. Construct a tabular form in which you give a column eacli 
to the following headings: Is it money? If money, by 
whom issued f To what amount is it legal tender for private 



42 the; university of Wisconsin 

debts ? Is it a customary medium of exchange ? Add a col- 
umn at the extreme left of your form in which you list the 
following: Gold coins, gold bullion, silver dollar, postal 
money order, subsidiary silver, 5 cent pieces, check, gold 
certificate, silver certificate, bank draft, U. S. note, Treasury 
note of 1890, U. S. bond, National bank note. Federal Re- 
serve bank note, postage stamp. Answer the four questions 
for each of the above in the spaces reserved for them in your 
form. 
2. Suppose that under a bimetallic system the legal or mint 
i-atio between silver and gold is fixed at 16 to 1, and that 
some time thereafter the market ratio becomes 19 to 1, which 
metal would be taken to the mint to be coined and which 
would be used in the payment of debts! State the law 
involved. 



ELEMENTS OF ECONOMICS 43 



CHAPTER XII— CREDIT AND BANKING 

I. The Nature of Credit Transactions (1) 282 

II. The Nature of Credit Instruments (2) 499-500 

1. Open accounts — ^book credit. 

2. Promises to pay, including such instruments as" 
promissory notes, certificates of deposit, bank notes, 
government notes, bonds. 

3. Orders to pay. 

a. Checks. 

b. Commercial bills of exchange. 

c. Bankers' bills of exchange or drafts. 

III. The Bases of Personal Credit (1) 285-286 

IV. The Conversion of Personal Credit Into Bank Credit 

1. Its necessity (1) 286-287. 

2. The process of discounting (1) 287. 

V. Main Functions of Banks 

"The one essential function of a bank is selling (lend- 
ing) its credit to its customers in some form which will 
conveniently serve the same function as money ' ' — Fetter. 

1. Receiving deposits. 

a. Time deposits. 

b. Demand deposits. 

(1) • Conducting checking accounts. 

2. Making loans and discounts (1) 287. 

3. Negotiation of domestic and foreign exchange. 

4. Issuance of notes (1) 290. 

VI. Analysis of a Typical Bank Statement (1) 288; 
(2) 518-521 

1. The solvency of banks (1) 287. 

2. The necessity of maintaining adequate cash reserves 

(1) 288-289. 

VII. The Function of the Clearing House (1) 283-285; 
(2) 503-513 



44 THE UNIV'ERSITY OF WISCONSIN 

VIII. Classes of American Banks (1) 31o-315 

1. As to authorization by 

a. National Charter. 

(1) Federal reserve banks. 

(2) National banks. 

b. State Charter. 

(1) State banks. 

(2) Loan and Trust compaiiies. 

(3) Savings banks. 

c. General state law. 
(1) Private. 

2. As to dominant type of business. 

a. Investment banks. 

b. Commercial banks. 

IX. Defects of Our Banking Organization Before the 
Adoption of the Federal Reserve System 

1. Lack of system (1) 303-304. 

2. Inelasticity of credit (1) 301-303. 

3. Inelasticity of currency (1) 300-301. 

4. Periodic local congestion of funds (1) 295-297. 

5. Inadequate territorial disti'ibution of banking facil- 
ities. 

6. Lack of provision for foreign banking. 

X. The Federal Reserve System (1) 307-312; (2) 539- 
545 

1. The organization of the system. 

a. The Federal Reserve Board. 

b. The Federal Advisory Council. 

c. The Federal Reserve Banks. 

d. The Member Banks. 

2. Powers of the Federal Reserve Board. 

3. Duties of the Federal Advisory Council. 

4. Functions of the Fedei-al Reserve Banks. 
a. Rediscounting of commercial paper. 

h. Issuance of notes to circulate as i^apcr money. 

c. Custodianshij) of the central reserves of the 
system. 

d. Establishment of branch banks. 

<'. Fiscal agent of the United States government 
f. Mi.scelhmeous ^'open-mnrket" operations. 



KT.EMENTS OF ErONOMTCS 45 

5. Functions of member banks. 

a.- The National banks (1) 291-293. 
h. State banks. 

References 

(1) Ely, R. T., OutUne:^ of Economics, Ch. XV. 

(2) Marshall Wright & Field, Materials for the Study of Ele- 
mentary Economics, Sees. 147, 148, 149, 150, 151, 153, 159. 

Exercise 

1. a. Constrnct a bank balance sheet from the following data: 

U. S. Bonds $100,000 

Capital 100,000 

Loans and Discounts 800,000 

Buildings and Fixtures 100,000 

Undivided Profits 10,000 

Surplus 20,000 

Deposits 1,000,000 

Cash 70,000 

Due from other Banks ; 100,000 

Circulating Notes outstanding 40,000 

b. Is this bank a ''member bank" of the Federal Reserve 
System f Give reasons for your answer. 

c. If this bank discounts, at 6%, a promissory note for 
$20,000 (face value), due in three months, and gives 
bank credit in exchange, what changes must be made in 
this bank statement ? Answer by putting corrected fig- 
ures in parentheses after original figures in statement. 



4-0 THE TTNIVRRSITY OF WISCONSIN 



CHAPTER XIII— SOME MONETARY PROBLEMS 

The Problem of the General Price Level 
The general level of prices changes over periods of time. 
When the trend is upward, as it has been since 1896, those 
whose incomes do not rise correspondingly suffer hardship 
due to their decreased purchasing power. To explain 
these changes in the price level and to suggest means of 
procuring greater stability of prices, are the theoretical 
and applied aspects of the ''problem of the general price 
level." 

1. Meaning of price level (1) 317-319. 

The concept of the "general price level" is reached 
when we compare the price ratio of money to other 
goods at a given time Avith its ratio at some other time, . 
These changes in the value relationship of goods and 
money are expressed by percentages called index num- 
bers, the price in some year taken as a base being con- 
sidered as 100. 

The general level of prices measures the value of 
money — its power of exchange. The value of money 
and the general price level are two aspects of the same 
fact : the exchange ratio of money and goods. The 
higher the price level, the lower is the purchasing 
power of money and vice versa. 

2. Use of index numbers to indicate changes in the price 
level (1) 337-342. 

a. Meaning of index numbers. 

b. Derivation of the tabular index number by using 
the 

(1) Arithmetic average. 

a. Simple. 

b. Weighted. 

(2) Median. 

(3) Mode. 

e. Interpretation of graph based upon index num- 
bers showing price changes. 
(See index number graph in each issue of the 
"Annalist"). 



• ELEMENTS OB^ ECONOMICS 47 

3. The equation of exchange (1) 321-325. 

M V plus M^ V^ equals P T. 

The equation of exchange expresses the fact that the 

total amount paid for things during a period of time 

equals the sum of the prices of all the units purchased. 

As such it is a truism, and holds no matter what 

theory one entertains concerning the movement of 

prices. 

4. The quantity theory of the general price level (1) 319- 
321, 324. 

Quantity theorists assert that "p" in the above equa- 
tion is a resultant of the other factors, that prices rise 
and fall in direct proportion to changes in the quan- 
tity of money. (For the process by which this is ac- 
complished see (1) 325-327.) 

5. The theory of price based on marginal utility of the 
standard commodity (1) 327-331. 

The opponents of the quantity theory contend that 
"p" is not passive but an active or causal factor in 
the equation of exchange. They show that the price 
level varies directly with the demand for goods and 
inversely with their supply, directly with the supply 
of gold and inversely with the demand for gold, gold 
having both a monetary and an industrial use. 

II. The Problem of Improving the Standard of Deferred 
Payments (1) 336-337 

1. Meaning of standard of deferred payments. The 
standard of deferred payments is the commodity iu 
which the amount of a debt is payable. Gold is the 
standard of deferred payments established by law in 
this country. 

2. Fluctuations in the value of the standard of deferred 
payments. A loan, representing a given amount of pur- 
chasing power when made, may represent a larger or 
smaller purchasing power at the time of maturity. 

a. An appreciating standard. 

b. A depreciating standard. 

3. Significance of "cheap money" movements in the U. S. 



48 THE UNIVERHITV OF WISCONSIN 

4. Suggested improvements in the standard of deferred 
payments. 

a. The tabular monetary standard (1) 342-343. 

b. The compensated dollar (2) 474-483. 

III. The Problem of Financial Crises (1) 333-336 

1 . Nature of financial crises. 

2. Causes. In every crisis there is maladjustment between 
production and consumption, which may be brought 
about in various ways. 

3. Eemedies. 

References 

(1) Ely, R. T., Ouilines of Economics, Ch. XVI. 

(2) Marshall, Wright and Field, Materials for the Stiidy of 
Elementary Economics, Sees. 138. 139, 140. 

Exercise 

1. Given the following prices: 

1890 1900 1910 

Flour per sack .$1.00 .$1.05 $1.50 

Potatoes per bushel .50 .70 .75 

Salt per pound .05 .06 .04 

Eggs per dozen .16 .20 .24 

a. Construct by means of the simple arithmetic average 
D.ethod a composite index number for each year using 
1890 as the base year. 

b. Is this a good index number to show changes in the gen- 
eral price level? 

c. If this index number is a correct index of price changes 
who is benefited most 

(1) The debtor or the creditor class? Why? 

(2) Salaried men or entrepreneurs? Why? 



ELEMENTS OF ECONOMICS 49 



CHAPTER XIV— FOREIGN EXCHANGE AND INTERNA- 
TIONAL TRADE 

I. The Mechanism of Foreign Exchange (1) 345-350 

1. Nature of foreign exchange. 

2. The process of negotiating foreign exchange. 

3. The determination of the price or rate of foreign ex- 
change. 

This depends upon the 

a. Amount of pure gold iii the monetary units to be 
exchanged. 

b. Cost of shipping gold. 

c. General credit conditions. The actual rate of ex- 
change between any two countries is determined by 
the relations between the demand for and supply of 
foreign bills of exchange and these depend upon 
the trade and credit relations of the two countries. 
Take England and the United States as examples. 
Whatever necessitates the transfer of funds from 
the United States to England is a source of demand 
for bills of exchange on London. These are wanted 

(1) To pay for merchandise imports. 

(2) To pay for securities purchased by us abroad. 

(3) To pay the interest and dividends on foreign 
capital invested here. 

(4) To pay the freight and insurance earned by 
England. 

(5) To pay the expenditures of American tourists 
and residents abroad. 

(6) To pay maturing finance bills. 

Whatever necessitates the transfer of funds from 
England to the United States is a source of supply 
of bills of exchange. These are sold 

(1) To collect for merchandise exports. 

(2) To collect the purchase price of securities sold 
by us abroad, the purchaser being drawn upon 
for the purchase price. 



50 THE UNIVERSITY OF WISCONSIN 

(3) To secure loans of foreign money in America, 
the lender being drawn upon for the amount of 
the loan. 

(4) To borrow funds — finance bills. 

II. The Reciprocal Nature of International Trade (1) 361 

III. The Advantages of International Trade: The Prin- 
ciple of Comparative Costs (1) 361-366 

IV. The Regulation of International Trade (1) 358-360 
V. The Importance of International Trade 

References 

(1 ) Ely, R. T., Outlines of Economics, Ch. XVII. 

(2) Marshall, Wright and Field, Materials for the Study of 
Elementarii Economics, Sees. 162-166, 168-169. 

Exercise 

1. Assume that the labor costs are the real comparative costs. 
Waiving other considei'ations, if it takes 50 days' labor to 
produce a ton of tin in the United States and only 40 days' 
labor in England, and if it costs 20 days' labor to produce a 
ton of steel rails in the United States and 25 in England, 
would it pay for the United States to export or import steel 
rails? State the principle involved. 



ELEMENTS OP ECONOMICS 51 



CHAPTER XV— TARIFF POLICIES 

I. The Argument FOR Protection (1) 368-374 

1. Promotion of nationalism. 

2. Protection of infant industries. 

0. Development of the industrial independence so desir- 
able in the event of war. 

4. Development of the home market (2) 590-591. 

5. Defense against "dumping". 

6. Protection of the wages of labor. 

II. The Argument for Free Trade (1) 374r-380 

1. The theory of comparative costs justifies industrial spe- 
cialization and the free exchange of goods between 
countries (2) 597-608. 

2. Inconclusiveness of the "infant industries argument" 
for protection. 

3. Inconclusiveness of the "home market argument" for 
protection. 

4. Inconclusiveness of the "protection of the wage earner 
argument" for protection. 

5. Fallacj^ in the fiscal argument for protection. 

6. Undesir ability of protection because it fosters mon- 
opoly. 

III. Appraisal of the Arguments 

1. Historical validity. 

2. Present validity. 

IV. Tariff Poljcies of the United States (2) 57.8-584 

V. The Work of a Permanent Non-Partisan Tariff Com- 
mission 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XVIII. 

(2) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 171, 174, 177. 



THK UNIVKRSl'rV <)K \VTS("ONSr,V 



Part VI — DisTRreuiioN 

CHAPTER XVI— THE MARGINAL PRODUCTIVITY 
THEORY OF DISTRIBUTION 



1. Nature of Distribution (1) 384-388 

1. ''Distribution" means the apportionment of the value 
of any industrial product amono^ the agents contribut- 
ing to its production. 

2. The "product" of any agent means that 7iet increase 
in the total value of the output which is due to the use 
of the given agent. 

H. The Law of Diminishing Productivity (1) 388-390 
With a fixed supply of other agents, if successive units of 
a given agent are added, a point is soon reached beyond 
which the product per unit of the given agent diminishes 
as the number of units is increased. 

III. The Marginal Product (1) 890-395 

When a given number of identical units of an agent is be- 
ing used in a given industry, or establishment, the differ- 
ence in the total value of the product occasioned by a 
change of one unit in the number of units employed, is 
called the marginal product. 

IV. Relationship of the Value of the Marginal Product to 
THE Number of Units Employed by an Entrepreneur 
(1) 395-398 

"In order to achieve maximum profits, each entrepreneur 
will endeavor, so far as it is practicable, to apportion his 
use of land, labor and capital so that the value of the in- 
crement of product attributable to the marginal unit of 
each class of productive agents will about equal its ex- 
pense" (1) 396. 



El.KMENTS OF ECONOMICS 

V. The Marginal Productivity Theory of Distribution 

1. Statement of theory. 

2. Limitations. 

3. Social aspects. 

Reference 
(1) Ely. R. T., Outlines of Economics, Ch. XIX. 



Exercises 

1. Given a farm and a definite amount of capital. A laborer's 
yearly wage is $400. 



By employing- 



laborer the yield is. 
laborers 



$500 
1,000 
1,800 
2,600 
3,200 
3,800 
4,100 
4,400 



How many laborers are employed before the point of dim- 
inishing productivity is reached? Will it pay the farmer 
to keep on adding laborers '} What is the maximum number 
which he can economically employ? 

If the population of the U. S. increases 20 per cent while 
the amount of land and capital each remains stationary what 
will be the effect on wages? Interest? Rent? Explain in 
terms of marginal productivity of labor, capital and land. 



54 THE UNIVERSITY OF WISCONSIN 



CHAPTER XVII-THE RENT OF LAND 

I. The Nature of Rent (1) 407-408 

Popularly the word "rent" is used to describe the 
amount paid by one person to another for the tempor- 
ary use of a durable good, which is to be returned to the 
owner when the specified period of use has expired, e. g., 
the rent of a house, the rent of an automobile, the rent 
of a gown or dress suit, the rent of a textbook, etc. In 
most economic treatises, however, the term "rent" is 
used in a more special sense to describe the income de- 
rived from the ownership of land. 

1. "Economic rent" is a return for the "use of land 
under conditions which give it superior productive- 
ness". 

2. "Commercial or contract land rent" is the amount 
actually paid for the services of land. Assuming 
perfect competition the landlord cannot exact more 
than the economic rent from his tenant, nor can the 
tenant secure the land for less. Due to imperfect 
competition, custom, long-time contracts, ignorance, 
etc., the contract rent may vary widely from the 
economic rent. 

II. Causes of the Differential Return of Land (1) 408- 
410 

1. Differences in the quality of land. 

a. Physical. 

b. Chemical. 

c. Biological. 

2. Differences in location. 

III. Measurement of Rent 

1. Lf^nder conditions of uniform intensivity of cultiva- 
tion (1) 410^12. 

2. Under conditions of varying intensivity of cultiva- 
tion (1) 413-414. 

As a result of an increased demand for the products of 
the land, the poorer lands have to be cultivated and the 
l)etter lands have to be cultivated more intensively. 



ELEMENTS OF ECONOMICS 55 

' ' The rent of any piece of land is measured by the dif- 
ference between the money value of the products ob- 
tained from it by the use of the most advantageous 
amounts of labor and capital, and the money value of the 
products which could be obtained by the use of the same 
amounts of labor and capital on marginal land, or at the 
intensive margin of cultivation" (1) 415. 

IV. The Importance of Different Uses of Land in the 
Theory of Rent (1) 416-418 

Land that is marginal for one purpose is not necessarily 
marginal for all purposes. The marginal lands used 
for comparison in the theory of rent are the poorest 
lands it pays to use for any purpose. 

V. The Capitalization of Rent (1) 418-419 

"The process by which the capacity to yield a certain 
annual income is made the basis for the determination of 
a certain selling price is termed 'capitalization' " 
(1) 418-419. 

Land is valued because it commands a rent ; its value is 
determined through the capitalization of its economic 
rent, although where land rents are increasing the sell- 
ing value of land is apt to be higher than the capitaliza- 
tion of its present economic rent. 

VI. Factors Affecting Rents (1) 419^22; (2) 620-626 

1. Increase in population. 

2. Increase in the efficiency of agricultural labor. 

3. Increase in the amount or efficiency of agricultural 
capital. 

4. Improvements in transportation. 

5. Special factors affecting urban rents. 

VII. The "Unearned Increment" in Land Values (1) 422- 
425 

1. Meaning of "unearned increment." An unearned 
increment in the value of land is an increase in val- 
ues due primarily to social forces rather than to the 
efforts of the individual owner. 

2. Existence of unearned decrements. 

3. The taxation of the "unearned increment." 

4. The proposal to socialize "economic rent"- — the 
single tax scheme. 



56 thio university ok wisconsin 

References 

(1) Ely, R. T., Outliiiis of Economics, Ch.'XX. 

(2) Marshall, Wrij^ht niid Field, Materials for the Study of 
Ehmcninvji Economics, Sees. 178, 180, 181, 182. 

Exercises 

1. A fanner who is capable of eai'iiing; .^1,000 elsewhere em- 
plo.ys intelligently on his farm $4,000 worth of capital and 
600 days of hired labor. Wages are $2.00 per day and in- 
terest rates 6%. His capital wears out at the rate of $400 
per annum. His average crop sells for $3,600. Find the 
rent of land. 

2. Given the following normal data pei'taining to a wheat farm: 
Acres cultivated 320 ; yield per acre 20 bushels ; selling price 
of wheat $1 per bu. ; annual value of farmer 's service 
$1,000; number of men employed 7; number of months each 
laborer worked 6 ; monthly wage of each laborer $50 ; value 
of capital goods employed $7,000 ; annual depreciation of 
capital 10% ; interest rate 6% ; annual expenditure for in- 
surance and taxes $620. 

a. Determine the annual economic rent of the farm. 

b. If this is the normal return on the farm, at what price 
would you be willing to purchase it? 



ELEMENTS OF ECONOMICS 57 



CHAPTER XVIII— THE WAGES OF LABOR 

I. The Wage Situation in the United States 

1. Existence of a wage-earning class. 

2. Number of wage earners in the United States. 

3. Statistical data concerning wages in the United 
States. 

II. The Nature of Wages (1) 427 

"Wages constitute the price paid for the services of 
labor" (1) 427. 

1. Money, or nominal wages. 

2. Real wages. 

III. The Process of the Determination of Wages 

' ' The process of the determination of wages, like the de- 
termination of rent and interest, is a problem in valua- 
tion. The general principles of value are applicable 
here, and hence the interaction of demand and supply 
must be studied. So far as the wages of any one kind of 
labor are concerned, they will tend to be fixed at the 
point where the supply of that kind of labor and the de- 
mand for it are in equilibrium" (1) 428. 

IV. Analysis of the Demand for Labor (1) 428-430 

1. Meaning of the demand for labor. 

2. Elasticity in the demand for labor. 

a. Changes in the demand for the products of labor. 

b. Ease of substitution of capital goods or natural 
resources for labor. 

V. Analysis of the Supply of Labor (1) 431-437 

1. Meaning of the supply of labor. 

2. Distinctive characteristics of the labor supply 
(1) 431-432. 

a. Perishability. 

b. Inseparability of labor from the person of the 
laborer. 

c. Comparative immobility. 



58 THE UNIVERSITY OF WISCONSIN 

3. Eelation of the structure of the population to the 
supply of labor (1) 432-434. 

a. Sex. 

b. Age. 

c. Efficiency. 

4. Relation of the growth of the population to the sup- 
ply of labor (1) 434-437. 

a. Statement of the Malthusian theory of popula- 
tion. 

b. Appraisal of the theory. 

VI. Theories Purporting to Explain the Determination 
OF Wages 

Among the most celebrated of the theories which have 
been offered in explanation of the determination of 
wages and Avhich have adherents today are the following : 

1. The subsistence theory of wages (1) 437-438; 
(2) 643-644. 

2. The standard of life theory of w^ages (1) 438-439. 

3. The marginal or specific productivity theory of 
wages. This theory asserts that wages are measured 
by the marginal productivity of labor, t. e., by the 
value added to the product by the laborer who finds 
employment under conditions least favorable to his 
productiveness. 

VII. The Wage Contract (1) 442 

The interaction of the demand for labor and the supply 
of labor in the determination of wages finds expression 
in the wage contract. The wages actually paid are fixed 
by agreement between the employer and employee. This 
agreement reflects the subjective value which the em- 
ployer places upon the services of the prospective laborer, 
and the subjective value which the laborer places upon 
his own services. It is a process similar to the deter- 
mination of any other market price and differs for each 
grade of labor. 

1. The individual wage bargain. 

2. The collective w^age bargain. 

3. The check furnished by a legal minimum wage. 

VIII. Factors Influencing Wages 



ET.EMP^NTS OF' ECONOMICS 59 



References 



(1) Ely, R. T., Outlines of Economics, Ch. XXI. 

(2) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sec. 187. 



60 THE UNIVERSITY OP WISCONSIN 



CHAPTER XIX— THE INTEREST OF CAPITAL 

I. The Nature of Interest (1) 493 

"Interest is the price paid for the services of capital." 

1. Loan interest. The investor, unwilling himself to 
take the entrepreneurial risk, receives a price for 
the use of his money or goods for a definite period 
of time, which is called loan interest. 

2. Imputed interest is "that portion of the value of 
the products of industry which is attributed or im- 
puted to the services of capital, as distinct from the 
services of land and labor." 

II. The Former Disrepute of Interest Taking (1) 493- 
494 

III. The Possibility of Interest (1) 495^96 

Interest as an economic problem is a problem of the pos- 
sibility and the necessity of paying interest. 
The possibilitj'^ of interest is largely based upon the fact 
that when capital is used under the wise guidance of 
entrepreneurs it results in a more valuable product 
than when the capital is not used. To some extent, how- 
ever, interest w^ould be paid even if capital were not 
productive, for some people have a high time prefer- 
ence for present goods for consumption purposes. 
The productivity that determines the interest that can 
bo imputed to capital is the marginal or specific produc- 
tivity of capital — the value by which the total product 
would be decreased if any particular unit of capital were 
not used. 

IV. The Necessity of Interest (1) 496-499 

Interest is necessary as a compensation .for waiting, 
which most people consider a sacrifice. At any given 
time most people consider present goods worth more to 
them than future goods of like kind and number. The 
reasons for this ' ' time preference ' ' are : 
1. The inability of most people to vizualize future 

wants as clearly as present wants. Present wants 

are felt as more urgent. 



ELEMENTS OF ECONOMICS 61 

2. The uncertainty of life. 

3. The hope that perhaps the future will take care of 
itself. 

"^^et much saving would occur even if no interest were 
paid. 

Y. The Determination of the Interest Rate (1) 515-523 
The rate of interest equals the price paid per annum for 
a given loan divided by the face value of the loan. The 
interest rate is always determined by the interaction of 
the demand for and the supply of loanable funds. It is 
because some persons place a comparatively high subjec- 
tive value upon present in comparison with future goods, 
that there is a demand for loanable funds. And it is 
because some people have a comparatively low time pref- 
erence for present as compared with future goods, that 
there is a supply of loanable funds. 

VI. Sources of the Demand for Loanable Funds 

The demand for loanable funds comes from persons 
with a high time preference including: 

1. Entrepreneurs, who are interested in the productiv- 
ity of capital. 

2. Consumers 

a. Having intense present wants. 

b. Having small present income. 

c. Anticipating a large future income. 

d. Having a hazy view of the importance of future 
wants due to 

(1) Ignorance. 
- (2) Natural improvidence. 

VII. Sources of the Supply op Loanable Funds 

A. The supply of loanable funds comes from persons 
with a low time preference because of 

1. Confidence in the future security of savings due 
to 

a. Stability of government. 

b. Stability of banking institutions and laws. 

2. Large present income. 

3. Anticipation of a small future income. 



62 THE UNIVERSITY OF WISCONSIN 

4. Clear view of the urgency of future needs due 
to 

a. Education. 

b. Natural prudence. '' 

B. Sources of investment funds (1) 520-521. 

VIII. Distinction Between Gross Interest and Net In- 
terest (1) 523 
1. Gross interest or loan interest involves a payment for 

a. Supervision of investment. 

b. Risk of investment. 

c. Waiting. The amount actually necessary to re- 
compense marginal waiting is called net interest. 

Reference 
(1) Ely, R. T., Outlines of Economics, Ch. XXIV. 



ELEMENTS OF ECONOMICS • 63 



CHAPTER XX— THE PROFITS OF THE ENTREPRE- 
NEUR 

I. The Nature of Profits (1) 525 

Profits constitute the share of the product of industry 
which goes to the entrepreneur. "The difference between 
the total money income which an entrepreneur receives and 

his expenses of production constitutes his profits. Profits, 

then^ constitute a surplus over and above the expenses of 

production." 

II. Chief Elements Included in Profits (1) 526-527 

1. The entrepreneur's wage — the wages of management, 
not differing essentially from wages. The entrepre- 
neur's wage constitutes a kind of minimum profit 
necessary to induce the entrepreneur to engage in and 
continue his work. The entrepreneur's wage is to 
be sharply distinguished from pure profits. 

2. The gains resulting from the risks inevitable in busi- 
ness. 

Profits are considered a compensation for the assump- 
tion of these risks. 

3. Gains due to exceptional entrepreneurial ability or to 
exceptional opportunity. Profits are considered a sur- 
plus compensating the superior entrepreneur (2) 790- 
794. 

III. The Sources op Pure Profits 

1. The possibility of pure profits (1) 527-528. 

2. Incomplete adjustments in the price situation as it 
exists at any one time (1) 529-530. 

3. Changes in the general price situation (1) 530-532. 

a. Nature of speculation. 

b. Function of speculation. 

IV. The Marginal Productivity Theory of Distribution 

'AND Profits (1) 532 

y. Profits and the Justification of the Competitive Sy^^ 
TEM (1) 538-540 



64 the university op wisconsin 

References 

(1) Ely, R. T., Ouilines of Economics, Ch. XXV. 

(2) Marshall. Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 224, 225, 226, 227. 



ELEMENTS OF ECONOMICS g5 



CHAPTER XXI— THE DISTRIBUTION OF WEALTH 
AMONG PEOPLE 

I. The Nature of Wealth and Income 

1. From the individual point of view (1) 108-109 ; 542. 

2. From the national or social point of view (1) 111-114. 

II. Facts Concerning the Existing Distribution of Wealth 
Among the People of the United States 

1. The total available for distribution (1) 111-114. • 

2. The actual distribution among the various economic 
classes (1) 544-549. 

[II. Forces Promoting the Concentration of Wealth 

IV. Evils in the Concentration of Wealth 

V. The Problem of Poverty 

1. The nature of poverty. 

2. The causes of poverty (1) 549-551. 

3. The remedies for poverty. 

VI. The Problem of Improving the Distribution of Wealth 
(1) 551-553 

1. Necessity of adopting some equitable basis of wealth 
distribution. 

2. The problem of regulating the acquisition of wealth 
(1) 553-555. 

3. The problem of wealth diffusion (1) 555. 

4. The advantages of a more general diffusion of wealth. 

Reference 
(1) Ely, R. T., Outlines of Economics, Ch. XXVI. 



66 THE UNIVERSITY OF WISCONSIN 



Part VII — Problems of Industrialism 

CHAPTER XXII— CAPITALISM AND THE WAGES 

SYSTEM 

I. The Nature and Origin of Capitalism 

"Capitalism may be defined as the organization of busi- 
ness upon a large scale by an employer or company of em- 
ployers possessing an accumulated stock of wealth where- 
with to acquire raw materials and tools, and hire labor, so 
as to produce an increased quantity of wealth which shall 
constitute profit. "—Hobson, Evolution of Capitalism, p. 1, 
"Capitalism exists where such vast aggregations of capi- 
tal are necessary to carry on a given line of industry that 
in that line the working men become practically depend- 
ent upon the wealthy capitalistic class. "—Ellwood, The So- 
cial Problem, p. 155. 

II. The Nature and Origin of the Wages System 

III. Sources of Superiority of Capitalism and the AVages 
System over Preceding Economic Systems 

IV. Problems Raised by Capitalism and the Wages System 

1. The separation of worker from tools and product. 

2. The disappearance of personal contact between em- 
ployer and employee. 

3. The exploitation of labor. 

4. The accentuation of industrial strife. 

V. Divergence of Opinion as to the Future of Capitalism. 

The position of the 

1. Economic "standpatter" or conservative. 

2. Economic radical. 

3. Economic reformer or liberal. 

Reference 

(3) Hamilton, W, H., Current Economic Problems, Sees, 28, 
32-34. 



ELEMENTS OP ECONOMICS 67 



CHAPTER XXIII— THE FACTORY SYSTEM 

I. Nature of the Factory System 

Distinction between the faetory system and its predeces- 
sors, the guild and the domestic systems, in the following 
particulars : 

1. Ownership of raw material. 

2. Ownership of tools and machinery. 

3. Ownership of the work place. 

4. Control over the labor power. 

5. AVork of superintendence and management. 

6. Control of the marketing. 

II. Factors Influencing the Establishment of the Fac- 
tory System 

1. Character of the new machinery. 

2. Nature of the new power. 

3. Necessity of large capital. 

4. Necessity of a large number of congregated laborers, 
using division of labor. 

III. Problems Accentuated by the Factory System 

1. The labor problem. 

2. The woman problem. 

3. The urban problem. 

References 

(3) Hamilton, W. H., Curreiit Economic ProMems, Sec. 29, 

(4) Hobson, J. A., Evolution of Capitalism, pp. 54-65. 



i^^ THE UNIVERSITY OF WISCONSIN 



CHAPTER XXIV— EVILS IN THE MACHINE PROCESS 



I. Nature of the Machine Process 

II. Evils in the Machine Process 

1. Impersonality of the laborer. 

2. Long hours of work. 

3. Tendency to speeding up of machinery. 

4. Monotony of experience. 

5. Domination of mechanical rhythm over natural 
rhythm. 

6. Noise of machinery. 

7. Tiitensification of fatigue. 

TIL Proposed Remedies 

1. A shorter working day. 

2. Alternation of jobs. 

8. Training of the laborei\ 

References 

(4) Biicher, Karl, Industrial Evolution, Chs. 7, 8. 

(5) Hobson, J. A., Evolution of Modern Capitalism, Ch. 13. 

(6) Veblen, T., Theory of Business Enterprise, Ch. 2. 



ELEMENTS OP ECONOMICS 69 



CHAPTER XXV— ECONOMIC CHANGES IN THE HOME 

AND THE NEW ECONOMIC STATUS OF WOMEN 

I. The Economic Character of the Home Under the Do- 
mestic System 

II. The Decadence of the Old Type Home 
1. Changes effected by industrialism. 

III. The Resulting Economic Dependence of Women 

IV. The Advent of Women into Business and Industry 

1. Reasons. 

2. Growth in the relative number of wage-earning women 
in the United States. 

3. Growth in the number of occupations open to women. 

V. The New Economic Status of Women Involving 

1. Greater freedom of economic opportunity'- for women. 

2. Recognition of the professional character of home 
keeping — the work of the married woman. 

3. Valuation of the productive services of the liome- 
keeper. 

4. Improvement in woman's relation to income and prop- 
erty. 

VI. Problems Raised by the Advent of Women into In- 
dustry 

References 

(3) Hamilton, W. H., Current Economic Problems, ^ec. 31. 

(4) Carlton, F. T., Hutory and Problems of Organized Labor, 
Ch. XIV. 

(5) Goodsell, Willystine, The Family as a Social and Educa- 
tional Institution. 

(6) Nearing, S. & N., Woman and Social Progress. 

(7) Spencer, Anna G., Woman's Share m Social Culture, Chs. 
I, VIII. 



70 THE] UNIVERSITY OF<^ WISCONSIN 



Part VIII — Labor Problems 

CHAPTER XXVI— THE NATURE OF LABOR ORGAN- 
IZATIONS 

I. Thp: Historical Basis of Unionism (3) 581-582 

II. Structural Classification of Labor Organizations 

1. As to membership (1) 444. 

a. Trade union. 

1. Local. 

2. National. 

b. Industrial union. 

1. Local. 

2. National, 
e. Labor union. 

2. As to federation (1) 444-445. 

a. The city federation. 

b. The state federation of labor. 

c. The American Federation of Labor. 

III. Functional Classification of Labor Organizations 
(3) 584-588 

1. Business unionism. 

2. Uplift unionism. 

3. Revolutionary unionism. 

4. Predatory unionism. 

IV. The Economic Justification of Labor Organizations 

1. The employer's point of view (3) 596-600. 

2. The laborer's point of view (1) 445-446. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXIII, pp. 444-446. 
(3) Hamilton, W. H., Current Economic Problems, Sees. 284, 
286, 290, 291. 



ELEMENTS OP ECONOMICS 71 



CHAPTER XXVII— LABOR UNION POLICIES 

I. The Policy of Collective Bargaining (3) 600-602; 
605-608 

1. The weakness of individual bargaining. 

2. The strength of collective bargaining. 

II. The Policy of the Closed Shop (1) 448-449; (3) 608- 
614 

1. Nature of an open shop. 

2. Kinds of closed shops. 

a. The anti -union shop. 

b. The closed shop with open union. 

c. The closed shop with closed union. 

3. Grounds of justification of the closed-shop policy. 

4. Objections to the closed-shop policy. 

III. The Policy of Restricting Output (1) 449-451 

1. The nature of output restriction as practiced by 

a. Employers. 

b. Labor organizations. 

2. The labor unionists' justification of the restriction of 
output. 

a. The "lump-of-work" argument. 

(1) Statement of the argument. 

(2) Criticism of the argument. 

b. The " heal th-of -the- worker " argument. 

IV, The Policy of Regulating Hours 

1. The purpose in a shorter working day. 

2. The economic possibility of a shorter working day. 

a. Effect in industries where alertness and skill are re- 
quired. 

b. Effect in industries where the pace is set by ma- 
chines. 

c. Relation of the shorter working day to wages. 

V. The Policy of Controlling the Introduction of Ma- 
chinery 

1, Historical attitude of labor to the introduction of ma- 
chinery. 



72 THE UNIVERSITY OF WISCONSIN 

2. The "short time" effects of the introduction of ma- 
chinery. 

3. The "long time" effects of the introduction of machin- 
ery. 

4. The difficulties of the period of readjustment following 
the introduction of new labor saving machinery. 

VI. The Policy of Promoting Class Solidarity 

1. Social (1) 451-452. 

2. Political. 

References 

(1) Ely R. T., Outlines of Economics, Ch. XXII, pp. 447-452. 
(3) Hamilton, W. H., Current Economic Prohlems, Sees. 292, 
294, 295, 296. 



ELEMENTS OF ECONOMICS 73 



CHAPTER XXVIII— CLASS DIFFERENTIATION AND 
INDUSTRIAL CONFLICT 

I. Inevitableness of Class Differentiation 

II. Kinds of Classes 

1. Political. 

2. Economic. 

3. Social. 

III. Nature of Socio-Economic Classes 

IV. Basis of Class Differentiation 

1. Type of occupation. 

2. Wealth and income. 

3. Birth. 

V. Sources of Industrial Conflict 

VI. Labors' Weapons of Industrial Conflict 

1. The strike. 

a. Meaning. A. strike is a preconcerted cessation of 
work on the part of a gronp of employees for the 
purpose of enforcing certain demands concerning 
the conditions of their continued employment. 

b. Classification of strikes. 

(1) Direct. 

(2) Sympathetic. 

( 3 ) General. 

c. Objects of strikes. 

d. Causes of violence in strikes. 

e. Elficacy of strikes. 

2. Picketing. 

3. The boycott. 

a. Meaning. 

b. Forms of the boycott. 

(1) Simple. 

(2) Compound or sympathetic. 

c. Means of conducting boycotts. 

d. Conditions for success. 



74 THE UNIVERSITY OF WISCONSIN 

VII. Employers' Weapons of Industrial Conflict 

1. The lock-out. 

2. Strike-breaking by scabs. 

3. The black list. 

4. The injunction. 

VIII. Reasons for the Growing Interest of the Public in 
Industrial Conflict 

IX. The Legal Status of Industrial Conflict Weapons 

1. The strike. 

2. Picketing. 

3. The boycott. 

4. The lockout. 

5. The injunction. 

Eeferences 

(1) Ely, R. T., Outlines of Economics, Ch. XXII, pp. 452-457. 
(3) Hamilton, W. H., Current Economic Problems, Sees. 297- 
304, 310, 311, 334, 335. 



ELEMENTS OF ECONOMICS ' 75 



CHAPTER XXIX— INDUSTRIAL PEACE 

I. Agencies for Settling Industrial Disputes (4) 125-126 

1. Mediation or conciliation, which implies the bringing 
together of the parties to an industrial dispute by a 
third party for peaceable settlement of the dispute by 
discussion and argument. The mediator is a confiden- 
tial go-between. 

2. Voluntary arbitration which means the agreement by 
the parties to a dispute to 'submit the controversy to a 
third party by whose decision they promise to abide. 
The complete procedure in arbitration consists of the 
following steps : 

a. Submission of the case. 

b. Investigation. 

c. Refraining from strike or lockout during the in- 
vestigation. 

d. Drawing up an award. 

e. Enforcement of the award (4) 126. 

3. Compulsory investigation, which means that an inves- 
tigation is made by a board created by the state, with 
or without the consent of one or both parties to the 
dispute. 

4. Compulsory arbitration, which means that the parties 
to a dispute are obliged to submit their case to a third 
party for decision (3) 574-576. 

II. Some Governmental Agencies for Settling Industriaij 
Disputes 

1. The Newlands Act of 1913 superseding the Erdman 
Act of 1898— U. S. legislation (4) 136. 

2. The Canadian Industrial Disputes Investigation Act 
of 1907 (1) 459; (5) 250-253. 

3. ■ Compulsory Arbitration Acts of Australia and New 

Zealand (1) 459-460; (3) 571-573; (5) 253-261. 

III. Agencies for Preventing Industrial Conflict 

1. Trade agreements (5) 243-250. 

2. Profit-sharing (1) 461-463. 

a. The attitude of employers. 

b. The attitude of employees. 



76 THE UNIVERSITY OF WISCONSIN 

3. Producers' cooperation (1) 464-468. 

4. Welfare work for employees. 

5. Industrial democracy (1) 463-464. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXII, pp. 457-469. 

(3) Hamilton, "W. H., Current Economic Prohlems, Sees. 281- 
282. 

(4) Commons, J. R. & Andrews, J. B., Principles of Labor Leg- 
islation, Ch. Ill, pp. 24-160. 

(5) Carlton, F. T., History and Prohlems of Organized Labor, 
Ch. IX. 



ELEMENTS OF ECONOMICS 77 



CHAPTER XXX— LABOR LEGISLATION 

I. The Philosophy of Labor Legislation (1) 471-472; 
488-491 

II. Legal Obstacles in the United States to the Enact- 
ment of Protective Legislation for Labor (4) 263- 
267 

III. Legislation Concerning the Hours op Work 

1. Regulations concerning the hours of 

a. Children. 

b. Women. 

c. Men. 

2. Provisions of rest periods. 

3. The economic possibility of the shorter working day. 

4. The justification of the shorter working day. 

IV. Saeety and Health Legislation (1) 484-486 

1. The need of such legislation. 

2. The forms of such legislation. 

V. Child Labor Legislation (1) 476-479 

1. The problem of child labor. 

a. Prohibition of child labor. 

b. Gruidance of child's activities. 

2. Provisions of child labor laws. 

VI. Minimum Wage Legislation (1) 480-484; (2) 723-733 

1. Arguments for a legal minimum wage (3) 558-559. 

2. Arguments against a legal minimum wage (3) 564- 
566. 

3. The extent and types of minimum wage legislation 
(3) 562-564. 

VII. 'Legislation Concerning Employers' Liability 
(1) 486-488; (2) 747-756; (3) 538-543 

1. Employers' liability under the common law. 

2. Procedure in recovering damages. 

3. Common law defenses. 

a. Contributory negligence. 

b. Fellow servant rule. 

c. Assumption of risk. 

4. Statutory amendments of employers' liability acts. 



78 THE UNIVERSITY OF WISCONSIN 

VIII. Workmen's Compensation Legislation 

IX. Administrative Agencies 

1. The Wisconsin Industrial Commission. 



References 

(1) Ely, R. T., OutUnes of Economics, Ch. XXIII. 

(2) Marshall, Wright & Field, Materials for the Study of Ele- 
ynentary Economics, Sees. 211, 214. 

(3) Hamilton, W. H., Current Economic Frohlems, Sees. 264- 
266, 275, 277, 278. 

(4) Carlton, F. T., History and Problems of Organized. Lahor. 



ELEMENTS OP ECONOMICS 79 



Part IX — Population Problems 

CHAPTER XXXI— THE PROBLEMS OF A GROWING 
POPULATION 

I. The Problem of Numbers Arising Through Natural In- 
crease 

1. Statement of the Malthusiaii theory of population : 
Population has a tendency to outrun the food supply 
and is only held back by the operation of certain poji- 
tive checks which result in a high death rate, and cer- 
tain preventive cheeks, which result in a low birth rate 
(1) 434-437; (3) 457-459. 

2. Criticism of the Malthusian theory of population 
(3) 462-463. 

3. Present factors responsible for a falling birth rate 

(3) 463-467. 

II. The Problem of Numbers Arising Through Immigration 
(1) 68-74 

1. Factors creating the immigration problem. 

a. The greatly increased volume of immigration prior 
to the war (3) 468-472. 

b. The changing type of immigrant. 

c. The urban preference and segregation of the im- 
migrant. 

cl. The disappearance of free land. 

2. The economic value of the immigrant (3) 474-477. 

3. The menace of the immigrant (3) 478-482, 484-488, 
499-501. 

a. Economic. 

b. Social. 

c. Political. 

4. The restriction of immigration through a literacy test 
(3) 493^496. 



go THE UNIVERSITY OF WISCONSIN 

a. Nature of the test: the ability to read some language. 

b. Arguments in favor of the literacy test. 
e. Arguments against the literacy test. 

(1. Provisions of the immigration act of 1916. 

References 

(1) Ely, R. T.. Outlines of Economics, pp. 68-74, 434-437. 
(3) Hamilton, W. H., Ctirrent Economic Problems, pp. 449- 

451 and Sees. 225, 227-230, 232-233, 235-236, 238-239, 

244, 246. 



ELEMENTS OF ECONOMICS gl 



Part X — Problems of Speculation 

CHAPTER XXXII— THE PROBLEM OF ORGANIZED 
SPECULATION 

I. The Nature of Speculation 
II' The Chief Forms of Speculation 

III. Institutions for Organized Speculation (3) 176-178 

1. The board of trade. 

2. The stock exchange. 

IV. Analysis of the Financial Pages of Newspapers and 
Financial Journals 

A. The contents of the financial page. 

B. Illustrations of financial page terminology. 



1. 


Bnll. 




11. 


May wheat. 


2. 


Bear. 




12. 


Spot price. 


o. 


Lamb. 




13. 


Opening price. 


4. 


Long of stock. 




14. 


Closing price. 


5. 


Short of stock. 




15. 


Hedging. 


6. 


Selling short. 




16. 


Dealing on margin, 


7. 


Shorts rushing 


to 


17. 


Puts. 




cover. 




18. 


Calls. 


8. 


Squeezing the bear. 


19. 


Flurry. 


9. 


Corner. 




20. 


Panic. 


10. 


Futures. 









The Functions of Speculation 

1. The equalization of price fluctuations "between differ- 
ent points of time and between different markets" 
(1) 624. 

2. The transfer of risks to a "body of professional risk 
takers" (1) 624. 



82 THE UNIVERSITY OJ<^ WISCONSIN 

VI. The Evils in Speculation 

1. Occasional accentuation of price fluctuations. 

2. The promotion of gambling. 

a. Distinction between speculation and gambling 

(3) 166-167. 
b. Similarity of speculation and gambling (3) 167-168. 
e. Evils in gambling. 

References 

(1) Ely, R. T., Outlines of Economics, pp. 622-625. 

(3) Hamilton, W. H., Current Economic Problems, Sees. 82-88. 



ELEMENTS OF ECONOMICS g3 



Part XI — The Problem of Crises 

CHAPTER XXXIII— CRISES AND THE BUSINESS 

CYCLE 



I. Nature and Kinds of Crises (3) 238-239 

1. Financial crisis — the culmination of an upward price 
movement, and a sudden fall of prices which greatly 
impairs or destroys the credit of many. The crisis 
may develop into a financial panic, consisting in a wild 
frightened scramble on the part of people to meet 
their financial obligations in a time of scarce credit. 

2. Industrial crisis (depression) — the period of hard 
times usually following a financial panic, characterized 
by business inactivity, slowing up or shutting down of 
production, unemployment. 

II. Periodicity of Crises 

"Crises are frequently recurring phenomena of current 
. economic life." Attempts have been made to prove that 
they recur approximately every ten years. Leading crises 
in American economic life occurred in 1817-18, 1825, 
1837-39, 1857, 1873, 1884, 1893, 1903, 1907, 1914. 

III. The Course of a Business Cycle (3) 208-216; 225-232 

1. The period of prosperity — expanding credit, great com- 
mercial activity. 

2. The period of the crisis. 

3. The period of depression. 

4. The recovery. 

IV. Some Theories Explaining Crises 

1. The over-production theory (3) 242-243. 

2. The under-consumption theory (1) 333. 

3. Jevons' sun-spots theory (3) 243-244. 

4. The rain-fall theory (3) 245-246. 

5. The lagging interest rate theory (3) 247-249. 

6. The. capitalization theory (3) 246-247, 



84 THE UNIVERSITY OF WISCONSIN 

V. Some Kemedies to Mitigate the Evils of Crises 

1. Elasticity of credit (3) 253-256. 

2. Elasticity of currency (3) 257-259. 

3. Regulation of speculation. 

4. Stal)ility in tariff policy. 

5. Provision for employment on ]niblic works. 

6. Integration of industry (1) 33G. 

References 

(1) Ely, R. T., Outlines of Economics, pp. 333-336. 
(3) Hamilton, W. H., Current Economic Problems, Sees. 100- 
101. 106-108. 116. 119-123, 126-128. 



ELEMENTS OF ECONOMICS §5 



Part XII — Transportation Problems 

CHAPTER XXXIY— THE PROBLEM OF RAILWAY 
REGULATION 

I. The Devi^:lopment of Transportation (1) 90-93 

1. The turnpike period. 

2. The river and canal period. 

3. The railway period. 

a. The stage of experimentation. 

b. The stage of expansion. 

c. The stage of severe competition. 

d. The stage of combination and regulation. 

II. The Economic Characteristics of the Railway In- 
dustry 

1. The relative importance of capital (1) 558-560. 

2. The importance of the principle of decreasing costs. 

3. The importance of the principle of joint costs. 

4. A natural monopoly. 

HI. The Public Characteristics of the Railway Industry 

1. The peculiar dependence of the public welfare upon 
the railway industry, it being a natural monopoly. 

2. The exercise of the right of eminent domain for the 
railways. 

3. The subsidization of the railways. 

a. Kinds. 

b. Reasons. 

4. The protection of railway investment. 

IV. Classification of Railway Expenditures 
1. Operating expenses. 

a. Maintenance of way and structures. 
1). Maintenance of equipment. 

c. Conducting transportation. 



^Q THE UNIVERSITY OB" WISCONSIN 

d. Traffic expenses. 

e. General administration. 
2. Fixed expenses. 

\". Railway Revenues : Some Aspects of Rate-Making 

1. The establishment of freight tariffs and freight 
classifications (3) 370-372. 

2. Competitive factors in the determination of freight 
rates (3) 372-374. 

3. Principles underlying the determinalion of fi'eight 
rates. 

a. The principle of "charging what the traffic will 
bear". The "value of the service" and the 
"value of the commodity" may be regarded as 
special cases of "charging what the traffic will 
bear" (3) 377-378. 

b. The principle of basing charges upon the cost of 
the service. 

(1) Difficulties in the determination of the cost 
of the service (3) 374-376. 

(2) Physical valuation of railway property as a 
basis for determining the general level of 
rates (1) 565-567; (3) 380-381; 382-386. 

(3) Distance or length of the haul as an element 
in the determination of relative freight 
rates (1) 567-571. 

(a) The group rate or blanket system of 
rates. 

(b) The basing point system of rates. 

(4) Density of traffic as an element in the de- 
termination of relative freight rates. 

c. The principle of the "developmental rate." 

VI. The Emergence of the Railway Problem (3) 355-356 
Abuses appeared early in the policy of the railways 
toward shippers in matters of rates and service. In the 
correction of these abuses the railway problem of the 
past three decades has lain. Today the railway problem 
is assuming new forms. The chief forms of discrimina- 
tion practiced by the railways were 
1. Discrimination between commodities (3) 357-361. 



ELEMENTS OF ECONOMICS 87 

2. Discrimination between places, the "long and short 
haul" problem. 

3. Discrimination between individuals, the problem of 
rebating (3) 361-364. 

VII. The Problem of Railway Regulation 

1. The breakdown of competition (1) 560-563 ; (3) 352- 
354. 

2. The need of regulation (3) 364-365. 

3. Legislation establishing regulation (1) 574-575. 

a. The Interstate Commerce Act of 1887 (3) 365-366. 
. b. The Elkins Act of 1903 (3) 366-367. 

c. The Hepburn Act of 1906 (3) 367-369. 

d. The Mann-Elkins Act of 1910 (3) 369-370. 

e. The Clayton Act of 1914. 

4. Governmental organizations for regulation of rail- 
ways. 

a. The Interstate Commerce Commission. 

b. State public utility commissions. 

VIII. The Problem op Government Ownership (1) 571-572; 
(3) 388-394 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXVII. 
(3) Hamilton, W. H., Current Economic Problems, Sees. 
176-198. 



THE UNIVERSITY OF WISCONSIN 



Part XIII — Insurance Problems 



CHAPTER XXXV— ECONOMIC INSECURITY AND 
SOCIAL INSURANCE 

I. The Clauses op Economic Insecurity (31 515-522 

IT. The Nature of Insurance as a Remi':dy for Insecurity 

(1) 577-587; (3) 522-523 

III. The Chii:i' Fohms of Insurance 

1. Life. 

2. Fire. 

3. Casualty. 

4. Social. 

IV. Social Insurancf A(;aixst Industrial Accidents 
(1) 588-591. 

1. The extent of industrial accidents (3) 534—537. 

2. The incidence of industrial accidents (3) 540-542. 

3. The inadequacy of employers' liability in providing 
compensation (3) 538-540; 542-543. 

a. Wastefulness of law procedure. 
1). Rules of employers' liability. 

4. Workmen's compensation legislation as insurance 
against industi'ial accidents. 

;i. The scoj)e of the laws. 

b. The scale of compensation. 

c. The administration of the laws. 

V. Social Insurance of Health (1) 591-592 

1. The need for health insurance (3) 543-544. 

2. Systems of compulsory health insurance (3) 544-545. 

a. German. 

b. British (3) 546-548. 



ELEMENTS OP ECONOMICS 89 

VI. Social Insurance Against Old Age and Invalidity 
(1) 592 

1. The system of old age pensions (3) 548-550. 

2. The system of compulsory insurance. 

VII. Social Insurance Against Unemployment (1) 592-593 

1. The causes of unemployment (3) 524-526. 

2. Proposed remedies for unemployment. 

a. Labor exchanges (3) 526-528. 

b. Government employment (3) 528-530. 

c. Regularization of industry. 

d. Compulsory unemployment insurance (3) 531-534. 

References 

(1) Ely, R. T., Outlines of Economics, pp. 587-594. 
(3) Hamilton, W. H., Current Economic Problems, Sees. 
254-270. 



90 THE UNIVERSITY OP WISCONSIN 



CHAPTER XXXVI— LIFE INSURANCE 

I. The Nature of Insurance (1) 577-578 

1. Definition. Insurance is a business whose chief func- 
tion is the assumption of risk by distributing among 
many the losses sustained at any given time by a few. 

2. Reasons for the productive character of insurance, 

3. Distinction between insurance and gambling. 

4. The scientific basis of insurance, 
a. The law of probabilities. 

II. Forms of Insurance Organization (1) 580-581 

1. Stock companies. 

2. Mutual companies. 

a. Assessment companies. 

III. Classification of Insurance Policies (1) 582-583 

An insurance policy is a written contract between the in- 
surer and the insured, assuming many different forms. 
Policies may be classified 

1. According to maturity. 

a. Ordinary life. 

b. Limited payment life. 

c. Term. 

d. Endowment (1) 584. 

2. According to participation in the earnings of the com- 
pany. 

a. Participating. 

b. Non-participating. 

3. According to premium plan. 

a. Natural premium or step rate plan. Under the 
natural premium plan the insured pays each year 
the cost of the deaths for that year proportioned ac- 
cording to the probability of dying at the age of the 
insured. It means an annually increasing premium. 

b. Level premium plan, the same annual payment be- 
ing made throughout the life of the policy. 

(1) Necessity of maintaining a reserve (1) 583. 



RT/EMBNTS OF ECONOMICS 91 

IV. Sources of Surplus in the Insurance Business 
(1) 583-584 

V. Possibility OF State Insurance (1) 585-586 
1. The Wisconsin experiment. 

YI. The Need an6 Nature of State Regulation of Insur- 
ance (1) 586-587 

Reference 
(1) Ely, R. T., Outlines of Economics, Ch. XXVIII. 



92 THE UNIVERSITY OP WISCONSIN 



•Part XIV — Agricultural Problems 



CHAPTER XXXVII— SOME PROBLEMS OF AGRICUL- 
TURAL ECONOMICS 

I. The Problem of the Size of Farms 

L Statistical data concerning the size of farms in the 
United States in 1910 (1) 596-599. 

2. Forces affecting the size of farms and the intensivity 
of their cultivation (1) 600-601. 

3. The prospect of more intensive cultivation of the land 
in the United States. 

II. The Problem of Tenancy 

1. Statistical data concerning the growth of tenancy in 
the United States (1) 603-604. 

2. Explanations for the growth of tenancy in the United 
States (1) 603-605. 

3. Economic advantages of tenancy in an old country 
where land values are high and fluctuating (1) 615- 
617. 

4. Advantages of land ownership (1) 617. 

III. The Problem of Farm Credit 

1. The need of agricultural credit in the United States 
(1) 609-611. 

2. The European solution of the problem of farm credit 
through the establishment of mortgage land banks and 
credit associations (1) 611-613. 

3. The Federal Farm Loan Act of July, 1916 (1) 613- 
615. 

a. Organization of the federal land banks. 

b. Functions of the federal land banks. 



ELEMENTS OF ECONOMICS 93 

IV. The Problem of Marketing (1) 618-622 

1. The difficulties in securing cooperation among Amer- 
ican farmers. 

2. The forms and growth of sellers' cooperation among 
American farmers. 

3. Economic advantages of cooperative selling. 

4. Governmental regulation of marketing. 

Keference 
(1) Ely, E. T., Outlines of Economics, Ch. XXIX. 



94 THE UNIVERSITY OF WISCONSIN 



Part XV — Problems of Public Finance 



CHAPTER XXXVIII— PUBLIC EXPENDITURES 

I. Nature of Public Finance (1) 643 

"Public finance deals with the revenues of government, 
with their expenditure, and their administration." 

II. Distinctive Characteristics of a Public in Contrast 
WITH a Private Economy (1) 646-648 

1. Relative elasticity of public revenues and relative in- 
elasticity of public expenditures. 

2. Perpetuity of the state. 

3. Inclusive sim of public expenditures. 

III. The Growth in Public Expenditures 

1. Absolute and relative amount of public expenditures 
in the United States in 1913 (1) 662. 

2. Reasons for the growth in public expenditures (1) 645, 
650-651. 

3. Proper proportion between the total income of society 
and public expenditures (1) 648-650. 

a. Wagner's rule. 

4. Policies concerning public expenditures (1) 652-654. 

a. The policy of extravagance. 

b. The policy of parsimony. 

c. The policy of frugality. 

d. The policy of economy. 

Good government comes high but it is worth it. 

IV. The Development of Public Expenditures 

1. As to historical sequence — reasons (1) 654-659. 

a. External security. 

b. Internal security, 



ELEMENTS OF ECONOMICS 95 

e. Promotion of material interests. 

d. Benevolence. 

e. Education. 

f. Labor. 

2. As to regularity and irregularity — reasons (1) 659- 
664. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXXI. 

(3) Hamilton. W. H., Current Economic Problems, Sec. 837. 



96 THE UNIVERSITY OF WISCONSIN 



CHAPTER XXXIX— THE SOURCES OF PUBLIC 
REVENUE 

I. Public Loans 

1. The increasing use of the public credit as a means of 
raising funds for governmental purposes (1) 667-668. 

2. The amount of governmental receipts from loans, and 
the size of public debts (1) 666-667. 

3. The justification of resorting to government loans 
(1) 668-671. 

II. Public Domain 

1. The historical significance of the public domain as a 
source of revenue (1) 671-673. 

2. The land policy of the United States as to 

a. Agricultural land (1) 673-674. 

b. Forest land (1) 674-675. 

c. Mineral land (1) 675-677. 

d. Water powers. 

3. The proposal of land nationalization. 

a. Nature of the single tax program (1) 679-680. 

b. The case for the single tax (1) 680; (3) 724-726. 

c. Objections to the single tax (1) 680-682; (3) 726- 
727; (2) 889-897. 

III. Public Industries — Public Prices 

1. Classification of public industries as to governmental 
purpose therein (1) 682-684. 

a. Discouragement of consumption. 

b. Regulation. 

c. Public service. 

d. Revenue. 

2. Basis of charges for the products or services of public 
industries (1) 684-687. 

IV. Fees (1) 689-692 

1. Nature. A fee is a payment required from a person to 
defray in part or whole the expense of a special serv- 
ice rendered him by the government. The service is 
less dominantly commercial than in the case of the 



ELEMENTS OF ECONOMICS 97 

public price. University fees, court fees, sheriff's fees 
are illustrations. 

2. Advantages of the fee system. 

3. Evils in the fee system. 

4. Remedies for the evils. 

Special Assfssments (1) 692-694 

1. Nature. Special assessments are compulsory contribu- 
tions "levied in proportion to the special benefits de- 
rived, to defray the cost of a specific improvement to 
property, undertaken in the public interest" e. g., 
street improvement assessments. 

2. Advantages of a system of special assessments. 

3. Evils in special assessments. 

4. Remedies for the evils. 



VI. Taxation 



References 



(1) Ely, R. T., Outlines of Economics, Ch. XXXII; XXXIII, 
pp. 689-694. 

(2) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 256-257. 

(3) Hamilton, W. H., Current Economic Problems, Sees. 350- 
353. 



98 THE UNIVERSITY OF WISCONSIN 



CHAPTER XL— TAXATION 

I. Nature of Taxation 

A tax is a general coinpuLsory conti-ibution of wealth, 
exacted by public authority aecordinji' to some general 
rule, and levied without reference to the special benefits 
whicli tlie eontril)utors may derive from the public pur- 
pose for which the i-evenue is required (1) 690. The 
absence of a quid pro quo distinguishes taxes from x">iiblic 
prices, fees, and special assessments. 

II. Standards oi-' Jt'stice in Bearing the Burden of Tax- 
ation 
1. The principle of benefits received (1) 698; (3) 697- 

698. 
2. The principle of ability to pay (1) 698-099; i3) 698. 
a. Bases of ability to pay (1) 699. 

1. Property. 

2. Income. 

3. Outgo or consumption. 

b. Variations in the ability to bear the burden of 
taxation (1) 699-700. 

(1) Proportional taxation. 

(2) Progressive taxation. 

(3) Regressive taxation. 

(4) Degressive taxation. 

III. The Shiftinc and Incu^ence of Taxes (1) 703-708; 
(3) 699-706 

1. Nature of shifting. Shifting means passing on the 
])urden of the tax, c. g., the duty on tea is shifted by 
the importer to the consumer. 

2. Nature of incidence. By the incidence of a tax is 
meant the final location of the burden of the tax. 

IV. ('RrrERLv OF (4ooD Taxes (1) 696-697; (3) 696-697 

1. Uniformity. 

2. Certainty. 

3. Convenience. 

4. Simplicity. 

5. Economy. 

6. Justice. 



ELEMENTS OP ECONOMICS 99 

V. Classification of Taxes in the United States 

1. As to the taxing body. 

a. Federal. 

b. State. 

c. Local. 

2. As to incidence. 

a. Direct taxes. 

b. Indirect taxes. 

3. As to form. 

a. Custom duties. 

b. Excise or internal revenue duties. 

c. Transaction taxes. 

d. Income taxes. 

e. Inheritance taxes. 

f. Corporation taxes. 

g. Business and license taxes, 
li. General property tax. 

i. Poll taxes. 
As far as the unit against which they are assessed is con- 
cerned it may be helpful to classify the various forms 
of taxes as follows : 

71. Personal Taxes 

1. Poll taxes (1) 734. 

2. Inheritance taxes (1) 723-726. 

a. Nature. Most inheritance tax laws contain the 
following provisions : 

( 1 ) The separate legacy rather than the estate as 
a whole is taxed. 

(2) Legacies to relatives in the direct line are 
taxed at a lower rate than legacies to collat- 
eral relatives. 

(3) Legacies below a stipulated minimum are ex- 
empt from taxation. 

(4) Progressive rates of taxation are imposed. 

b. Importance for state and federal revenue. 

c. Merits of the inheritance tax. 

d. Problems raised by inheritance taxation in the 
U. S. 

3. Income taxes. 

a. Nature of the income tax. 

b. History of federal income taxation (1) 710-712. 



100 THE UNIVERSITY OP WISCONSIN 

c. Provisions of the federal income tax law of 1913 
(3) 713-716. 

d. Importance for state and federal revenue (1) 723. 

e. Merits of the income tax (1) 721-722. 

f. Difficulties in the income tax (1) 721. 

VII. Expenditure or Consumption Taxes 

1. Custom duties. 

a. Kinds (1) 717. 

b. Importance for federal revenue (1) 713. 

c. Extent to which the foreign exporter can be made 
to pay the duty (1) 713-715; (3) 704-706. 

d. Merits of customs duties (1) 715. 

e. Defects of customs duties (1) 715-717. 

2. Internal revenue duties. 

a. Sources (1) 717-718. 

b. Defects (1) 718-719. 

c. Advantages (1) 719. 

VIII. Property Taxes 

1. General property tax. 

a. Importance. 

b. Faults of the general property tax (1) 727-729; 
(3) 706-708. 

c. Reforms (1) 729-731. 

IX. Business Taxes 

1. Transaction taxes (1) 719-720. 

2. Corporation taxes (1) 731-733. 

3. Business and license taxes (1) 733-734. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXXIV. 
(3) Hamilton, W. H., Current Economic Problems, Sees. 340- 
345, 348. 



ELEMENTS OF ECONOMICS JQl 



Part XVI — Economic Policies 



CHAPTER XLI— THE POLICY OF MERCANTILISM 

I. The Historical Background of the Mercantilistic Doc- 
trine 

II. Important Mercantilistic Doctrines 

1. Emphasis upon nationalism. 

2. Importance of the precious metals. 

3. Encouragement of foreign trade. 

a. Import duties and export bounties. 

b. Colonization. 

c. Establishment of great trading companies. 

d. Commercial treaties. 

4. Doctrine of a favorable balance of trade. 
Encouragement of manufactures. 

a. Desirability of cheap raw materials. 

b. Desirability of cheap foodstuffs. 

c. Desirability of large population. 
Encouragement of the shipping industry. 



References 

(1) Ely, R. T., Outlines of Economics, pp. 42-43. 

(3) Hamilton, W. H.. Current Economic Prodlems, See. 19. 



K 



2Q2 THE UNIVERSITY OF WISCONSIN 



CHAPTER XLII— THE POLICY OF LAISSEZ-FAIRE 

I. The Nature of the Laissez-Faire Philosophy 

II. Leading Principles of the Laissez-Faire Philosophy 

1. Natural laws and rights (3) 90-91. 

2. Individual liberty (3) 98-103. 

3. Enlightened self interest (3) 91-95. 

4. Free competition. 

III. Reasons for the Strong Hold of the Laissez-Faire 
Philosophy in the United States 

IV. Criticism of the Principles of the Laissez-Faire Phi- 
losophy (3) 105-107. 

V. Reasons for the Decline of the Laissez-Faire Philos- 
ophy 

1. The growth of large scale industry. 

2. The exploitation of the weaker members of society. 

3. The growth of economic interdependence. 

4. The limitation of economic opportunity. 

Reference 

(3) Hamilton, W. H., Current Economic Problems, Sees. 41— 
45, 48-51. 



ELEMENTS OF ECONOMICS IQS 



CHAPTER XLIII— THE POLICY OF GOVERNMENT 
CONTROL 

I. Earlier Conceptions of the Functions of G-overnment 
II. Grounds for the Extension of Government Control 

III. Forms of Government Control 

1. For the consumer. 

2. For the producer. 

3. For the investor. 

4. For the general public. 

lY. Agencies for the Exercise of Government Control 
Y. Modern Conceptions of the Functions of Government 

Reference 
(3) Hamilton, W. H., Current Economic Problems, Sees. 52-58. 



104 THE UNIVERSITY OF WISCONSIN 



CHAPTER XLIV— THE PROPOSAL OF SOCIALISM 

The term "Socialism" is properly applied to three things: 
1) to a possible organization of society; 2) to a body of prin- 
ciples or theories ; 3 ) to a political movement. The movement is 
based upon socialistic principles and has as its objective the at- 
tainment of the socialistic state. 

I — The Socialistic State 

I. Nature of Socialism as a Possible Future Organization 
OF Society (1) 627-628, 632; (3) 752-757 

1. Socialization of the most important material instru- 
ments of production. Not all capital goods would be so- 
cialised, but for the most part private property in capi- 
tal goods would be abolished; the ownership of small 
scale capitalistic enterprises in which there could be no 
possibility of exploiting labor might be left in private 
hands. 

2. Collective management of production — industrial de- 
mocracy. 

3. Distribution of social income by society. Various 
bases of distribution have been suggested including 
(a) mechanical equality, (b) need, (c) sacrifice, (d) 
productivity. 

4. Retention of private property in consumption goods. 

II. Conceivable Steps in the Acquisition of the Collec- 
tive Ownership of Industry (3) 769-770 

1. Voluntary bestowal. 

2. Socialization with pensioning of the present owners. 

3. Governmental competition forcing private enterprise 
from the field. 

4. Confiscatory taxation. 

5. Confiscation. 

6. Purchase. 

III. Differentiation of Socialism from Other Plans of So- 
cial Improvement or Reconstruction 

1. Profit-sharing. 

2. Consumers' and producers' cooperation. 



ELEMENTS OF ECONOMICS 105 

3. Government ownership. 

4. Single tax reform. 

5. Anarchism (1) 638-639. 

6. Communism (1) 631-632; (3) 751-752. 

7. Social reform (1) 636. 

IV. The Strength of Socialism 

1. Emphasis upon a scientific organization of production 
(1) 632-633. 

a. Elimination of the wastes of competition. 

b. Elimination of the wastes of industrial depressions. 

c. Elimination of unemployment. 

2. Emphasis upon a more equitable distribution of wealth 
(1) 633. 

V. The Practical Difficulties Involved in Socialism 
(1) 634-636; (3) 773-777 

1. Mistaken objections to socialism. 

a. Failure of communistic experiments presages the 
failure of socialism. 

b. Socialism contemplates the abolition of all forms of 
private property. 

c. Socialism is identical with anarchism. 

d. Alleged hostility of socialism to religion and the 
family. 

e. Socialism contemplates the equality of all men. 

f . The socialistic state would be hampered by a lack of 
the "accumulation of capital". 

g. Socialism is the negation of liberty. Distinction be- 
tween positive and negative liberty. Socialism does 
not remove all options. 

2. Some practical difficulties involved in the socialistic 
program. 

a. Difficulty of increasing wealth production while 
shortening hours, so as to make possible the greatly 
increased incomes described by some socialists. 

b. Difficulty of maintaining efficiency on the part of 
the workers. Fear of unemployment is removed. 
Irksomeness of monotonous labor. 

c. Difficulty of selecting and retaining effective leaders. 
Psychology of the "laurel wreath". Possible bad 
effects upon originality, upon the requirements of 



106 THE UNIVERSITY OF WISCONSIN 

persons engaged in the higher pursuits, and upon 
the distribution of labor forces so that production 
may be harmoniously developed. 

d. Difficulty of determining upon a generally accept- 
able standard of distribution, at once just and suffi- 
ciently stimulating to evoke the best efforts of all. 

e. Difficulty suggested by Malthusianism. 

II — Socialistic Theory — Marxian 

I. The Economic Interpretation of History 
II. The Doctrine of the Class Struggle 
III. The Marxian Theory of Value and its Corollaries 

1. Labor theory of value. 

2. Right of labor to the full product. 

3. Theory of surplus value. 

4. Exploitation theory of interest and profits. 

5. Iron law of wages. 

6. Doctrine of increasing misery. 

7. Theory of crises. 

Ill — The Socialist Movement 

I. Varieties of Socialism (1) 628-631 

1. Utopian socialism. 

2. Christian socialism. 

3. Fabian socialism. 

4. State socialism. 

5. Scientific socialism (Marxian). 

II. Present Status of the Socialist Movement (1) 636-638 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXX. 
(3) Hamilton, W. H., Current Economic Problems, Sees. 361- 
375. 



ELEMENTS OF ECONOMICS 107 



Suggestions Concerning Topics 

Purpose 

The purpose in the preparation of a topic is to gain familiarity 
with economic literature, a more intensive knowledge of the given 
economic subject, and training in the organization of thought. 
Students expecting to major in economics may perhaps through 
the preparation of these topics find some field of interest which 
will later furnish a thesis field and subject. 

Reference Material 

1. The card catalogue of books of the University and the 
Historical Libraries. This is arranged by topic, title of 
book, and author. 

2. The Reader's Guide to Periodical Literature and Poole's 
Index to Periodical Literature. Consult the more scien- 
tific rather than the popular magazines. 

3. The card catalogue of public documents of the library 
found in the document room of the Library. 

Method 

1. Prepare a carefully selected bibliography, following this 
model : 

Workmen's Compensation. 
Ely, R. T., "Outlines of Economics," pp. 588-591 

(1916). 
Fisher, W. C, "Field of Workmen's Compensation in 

U. S.," American Economic Review V, 221-278, 

(June 1915). 

2. Prepare the topic in outline form. Any chapter of this 
Outline such as "Chapter XXIX — Industrial Peace" may 
serve as a model for the general form. The outline should 
be so detailed, however, and contain so many complete 
statements, that it amounts to a synopsis. 



108 THE UNIVERSITY OF WISCONSIN 



Suggested Topics 

1. The Significance of the Industrial Revolution. 

2. The Conditions Favoring the Establishment of Capitalism. 

3. Specialization and Inter-Dependence. 

4. The Effects of Machine Industry upon Labor. 

5. The Problems Raised by the Advent of Women into In- 

dustry. 

6. The Nature and Functions of the American Federation of 

Labor. 

7. The Relative Merits of the Open and the Closed Shops. 

8. The Shorter Working Day. 

9. The Economic and Legal Aspects of Strikes. 

10. The Economic and Legal Aspects of Boycotts. 

11. The Compulsory Arbitration of Industrial Disputes. 

12. The Canadian Experience with the Industrial Disputes 

Investigation Act. 

13. The Experience of Australasia with Compulsory Arbitra- 

tion. 

14. Trade Agreements. 

15. The Ford Profit Sharing Plan. 

16. The Forms of Safety and Health Legislation. 

17. Federal Child Labor Legislation. 

18. Minimum Wage Laws in Theory and Practice. 

19. The Failure of Employers' Liability to Provide Adequate 

Compensation for the Injured Employee. 

20. The Organization and Functions of the Wisconsin Indus- 

trial Commission. 

21. The Nature of the Immigration Problem. 

22. The Restriction of Immigration. 

23. The Nature and Functions of the Chicago Board of Trade. 

24. The Nature and Functions of the New York Stock Ex- 

change. 

25. Organized Speculation — Prohibition or Regulation? 

26. Social Insurance Against Industrial Accidents. 

27. Old Age Pensions vs. Old Age Insurance. 



ELEMENTS OF ECONOMICS 109 

28. The Causes of and Remedies for Unemployment. 

29. The Feasibility of Compulsory Unemployment Insurance. 

30. The Services of and Dangers in Assessment Insurance Com- 

panies. 

31. The Wisconsin Experiment with State Insurance. 

32. Crises : Causes and Control. 

33. The GroAvth in Federal Control over the Railways. 

34. The Organization and Functions of the Wisconsin Railway 

Commission. 

35. The Organization and Functions of the Interstate Com- 

merce Commission. 

36. Compulsory Investigation in the Settlement of Disputes be- 

tween Railways and their Employees. 

37. Government Ownership of Railways. 

38. The Cooperative Marketing of Farm Products. 

39. The Need of Agricultural Credit in the U. S. and What the 

Federal Farm Loan Act does to meet it. 

40. Historical and Conservation Aspects of the Land Policy 

of the United States. 

41. The Single Tax Programi — its Merits and Demerits. 

42. Unearned Increment Taxation. 

43. The Shifting and Incidence of Various Forms of Taxes. 

44. The Principles and History of Inheritance Taxation. 

45. The Principles and History of Income Taxation. 

46. The General Property Tax — Its Faults and Their Remedy. 

47. The Laissez-Faire Philosophy in American Economic Life. 

48. Manifestations of the Policy of Government Regulation. 

49. Historical Varieties of Socialism. 

50. Socialism, as a Body of Doctrine. 

51. Socialism, as a Political Movement. 

52. Socialism, a Possible Economic Organization of Society. 

53. The Socialistic Doctrine of the Class Struggle. 

54. The Strength and Services of Socialism. 

55. The Practical Difficulties Involved in Socialism. 



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